On Monday, the US dollar saw a noticeable drop as investors gravitated toward traditional safe-haven assets, particularly the Swiss franc and Japanese yen. This shift followed President Donald Trump's recent threat to impose a 10% tariff on imports from several European nations, including Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and the United Kingdom, effective February 1. The tariffs are reportedly contingent on the US being permitted to purchase Greenland.
Reacting to the tariff announcement, European leaders moved swiftly to prevent an escalation into a full-scale trade conflict. They agreed to intensify diplomatic efforts to dissuade the United States from implementing the tariffs and prepared possible retaliatory responses should the duties proceed. Initially, European currencies suffered slight declines but rebounded quickly, with the euro, British pound, and Scandinavian crowns strengthening in the European afternoon trading session.
The Swiss franc, renowned for its safe-haven appeal, saw its most significant one-day appreciation against the dollar in a month. At the same time, the euro edged up by approximately 0.3% to $1.1638, the British pound gained around 0.34% to $1.342, and the Norwegian crown also strengthened. Overall, the dollar retraced about 0.2% during the trading day, closing near 10.066.
Analysts observed that the immediate market response resembled previous periods of trade uncertainty, notably the widespread tariff announcements made by President Trump the previous April, which caused erosion in confidence toward US assets and a flurry of dollar selling. However, experts indicated that continued tensions could reverse this trend, prompting capital to return to the dollar if risk aversion deepens significantly.
Kit Juckes, Societe Generale's chief foreign exchange strategist, emphasized that while the possible trade war aggravated by Greenland-related disputes might be disadvantageous to Europe, it wouldn’t necessarily impair the dollar. Given Europe’s higher export dependence on the US compared to the reverse, the European economies might bear the brunt of such trade disruptions.
Regarding other safe-havens, the dollar declined by 0.7% against the Swiss franc, settling near 0.797 francs, and by 0.14% against the Japanese yen, closing around 157.9 yen. Recent domestic developments in Japan, including the prospect of a snap election and anticipated fiscal stimulus, have caused the yen to weaken near its lowest level since mid-2024. This fragility has increased speculation about potential official intervention from Tokyo, supported by verbal warnings from policymakers over recent weeks.
Derek Halpenny, head of research for global markets EMEA at MUFG, conveyed skepticism regarding the long-term effectiveness of such interventions, suggesting fundamental yen-supportive factors would need to re-emerge for sustained appreciation. Current yen movements appeared more contained compared to prior periods.
In parallel, the cryptocurrency market reflected heightened risk aversion, with Bitcoin falling approximately 2.5% to just below $93,011 and Ether dropping about 3.8% to $3,213, underscoring investors' retreat from higher-risk digital assets during this period of uncertainty.
Economic data released on Monday showed that China’s economy expanded by 5.0% last year, successfully meeting the government’s growth target. This performance was driven by China capturing a record share of global demand for goods, compensating for subdued domestic consumption. The onshore Chinese yuan responded positively, reaching a 32-month high of 6.9630 per dollar. This appreciation came despite the mixed economic data, buoyed by the country’s central bank implementing its strongest daily yuan fixing in more than two years.