On Monday, the U.S. dollar experienced modest depreciation as market participants shifted towards safer assets amid growing trade tensions caused by U.S. tariff threats against Europe linked to Greenland. By 04:20 ET (09:20 GMT), the Dollar Index, which measures the greenback's value relative to a basket of six major currencies, registered a drop of 0.2%, reaching 99.050.
Over the weekend, President Donald Trump announced plans to impose a 10% additional import tariff effective February 1 on products from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and the United Kingdom. This rate could escalate to 25% come June if the United States fails to negotiate access to Greenland, a semi-autonomous Danish territory.
Reports indicate that the European Union may respond by reinstating a substantial package of tariffs worth €93 billion on U.S. goods. This reciprocal move would likely intensify the strain between the U.S. and Europe, broadening the scope of the potential transatlantic trade conflict.
Despite these developments putting downward pressure on the dollar, overall losses were restrained, in part due to the U.S. observance of Martin Luther King, Jr. Day, which limits trading activity.
Analysts at ING noted in their assessment that it might be premature to hastily adopt a narrative of selling American assets in light of the Greenland tariff issue, comparing it to previous tariff measures that the market perceived as self-defeating. They cautioned that investors generally remain wary of reacting strongly to such rhetoric before diplomatic efforts fully unfold. Nonetheless, these factors are expected to inject some volatility into what has otherwise been a relatively calm investment atmosphere.
In European currency markets, the euro advanced against the dollar, with EUR/USD rising by 0.3% to 1.1630. The euro benefited from a heightened political risk premium against the U.S. dollar amid the escalating tensions. Market participants are also awaiting the release of the eurozone's December annual Consumer Price Index (CPI), forecasted to confirm a 2.0% rate, aligning with the European Central Bank's inflation objective for the first time since mid-2025, and slightly down from 2.1% in November.
The ECB has maintained interest rates without change since concluding its rate cut cycle last June and signaled in its most recent communication that it is not in a rush to adjust policy further at this time. ING analysts identified support for EUR/USD just below 1.1600, noting key intraday resistance at 1.1650, with potential to climb to between 1.1690 and 1.1700 if breached.
The British pound also saw a modest uptick, with GBP/USD edging 0.2% higher to 1.3403. This movement precedes what may be a week characterized by heightened volatility for the currency, as key monthly unemployment and inflation data releases are scheduled. ING analysts expressed a moderately bullish outlook for sterling, anticipating that the UK’s labor market and Consumer Price Index data for November and December could reinforce existing upward momentum in the currency.
Across Asia, the Japanese yen strengthened slightly versus the U.S. dollar, with USD/JPY dipping to 158.05 amid safe-haven demand triggered by global trade uncertainties. Political dynamics in Japan also garnered attention, with reports suggesting Prime Minister Sanae Takaichi may call a snap election soon to consolidate political support.
The Chinese yuan edged lower, as USD/CNY declined by roughly 0.1% to 6.9636, its lowest level since May 2023. This movement follows data indicating China’s economy expanded marginally faster than expected in the fourth quarter, with export strength contributing to GDP growth of approximately 4.5% year-over-year. However, retail sales disappointment in December highlighted persistent weaknesses in domestic consumer demand.
Commodity-linked currencies responded positively, with the Australian dollar inching up 0.2% to 0.6696 and the New Zealand dollar gaining 0.4% to 0.5774 against the U.S. dollar.