Dollar Slips as Trump’s Greenland Tariff Threats Rattle Markets

The U.S. dollar weakened on Monday as investors moved cautiously after President Donald Trump threatened to impose new tariffs on several European countries in a bid to pressure them into allowing the United States to acquire Greenland.

By 04:20 ET, the dollar index, which measures the greenback against a basket of six major currencies, was down 0.2% at 99.050, retreating modestly as risk sentiment deteriorated.

Tariff threats revive trade war fears

Over the weekend, Trump said Washington would introduce an additional 10% tariff from February 1 on imports from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and the United Kingdom. He added that the levy would rise to 25% in June if no agreement is reached over Greenland, the semi autonomous territory that is part of Denmark.

The announcement has revived concerns about a renewed transatlantic trade conflict. Media reports indicate that the European Union is considering reactivating a previously prepared €93 billion package of retaliatory tariffs on U.S. goods, a move that could significantly escalate tensions between the two sides.

Currency traders said the latest developments have increased political risk around the dollar, as markets attempt to gauge the longer term impact of aggressive trade tactics on U.S. growth, capital flows and global confidence in dollar assets.

Trading volumes were thinner than usual, however, due to the U.S. public holiday marking Martin Luther King Jr. Day, which limited the scale of market moves.

Euro and pound edge higher

In Europe, the single currency benefited from the shift in sentiment. The euro rose 0.3% to 1.1630, supported by increased risk premiums on U.S. assets and expectations that euro zone inflation data will confirm easing price pressures.

Later in the session, official figures are expected to show annual euro zone inflation at 2.0% in December, matching the European Central Bank’s medium term target for the first time since mid 2025, down from 2.1% in November. The ECB has kept interest rates unchanged since ending its rate cut cycle in June and has indicated little urgency to adjust policy further.

Sterling also firmed, with GBP/USD up 0.2% at 1.3403. Traders are bracing for a potentially volatile week for the pound, with key U.K. labor market and inflation data scheduled for release.

Yen steadies as election talk circulates

In Asia, the Japanese yen strengthened slightly on safe haven demand, with USD/JPY easing to 158.05 as investors sought refuge from growing trade uncertainty.

Political developments in Tokyo also drew attention after reports suggested Prime Minister Sanae Takaichi is considering calling a snap election in the coming weeks to reinforce her parliamentary mandate, adding another layer of uncertainty to regional markets.

The Chinese yuan gained modestly, with USD/CNY down 0.1% to 6.9636, its lowest level since May 2023, after data showed China’s economy expanded slightly more than expected in the fourth quarter. Strong exports helped lift overall growth to 4.5% year on year, although weak retail sales highlighted ongoing softness in domestic demand.

Elsewhere, the Australian dollar rose 0.2% to 0.6696, while the New Zealand dollar advanced 0.4% to 0.5774, supported by a softer U.S. currency and improved risk appetite outside Europe.

Overall, analysts said the dollar’s near term direction will depend heavily on whether Washington follows through on its tariff threats and how forcefully Europe responds, with currency markets likely to remain sensitive to further political signals in the days ahead.