(Jan 19): The dollar faces fresh headwinds as President Donald Trump weighs tariffs on European nations tied to his plan to acquire Greenland, raising uncertainties over US policies, according to analysts.
The Bloomberg Dollar Spot Index fell 0.1% in Asia after Trump threatened a 10% tariff on European allies supporting Denmark’s hold on Greenland. Treasury futures traded mixed with cash markets closed for a US holiday.
European currencies found support, with the Swiss franc outperforming its Group-of-10 peers on increased demand for haven assets. The euro rose from the lowest level in almost two months.
Trump’s tariff threats have reignited the "sell America" trade. The market will also be looking for the ‘TACO trade’ as Trump could be using the threat of tariffs as a negotiating ploy. This will give the USD some support.
Europe will be one of the biggest losers of the growing geopolitical risks under Trump’s presidency in 2026. The tariffs could add to cyclical headwinds for the eurozone economy and further erode pressure on Russia to end its war in Ukraine.
The market dynamic is that US assets, including the US dollar, are now carrying a much higher political risk premium. This would compel foreign investors to cut back or reduce exposure to US assets.
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The prevailing belief is a deal on Greenland will ultimately be forged. However, when sovereignty is at stake, the concern is that this could be taken to a far more dangerous place.
Greenland/geopolitical risks revive the de-dollarisation debate and leave the US’s large net international liabilities as a key vulnerability.
We are seeing a bit of USD weakness, which makes sense because the US is going to be isolationist again. However, the market is getting quite numb on tariffs, so reactions will likely be muted.
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Conditions are shifting in favour of buying European bonds with the region’s inflation indicators deteriorating and amid rising tensions between Europe and the US.
Uploaded by Evelyn Chan
