Global markets rattled by fresh Trump tariff threats on Europe

Global markets are facing volatility after President Donald Trump vowed to slap tariffs on eight European nations until the U.S. is allowed to buy Greenland, injecting fresh trade uncertainty as stocks slid and the dollar broadly weakened.

Trump said he would impose an additional 10% import tariff from February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain, which will rise to 25% on June 1 if no deal is reached.

Major European Union states decried the tariff threats over Greenland as blackmail on Sunday. France proposed responding with a range of previously untested economic countermeasures.

The euro EUR= firmed 0.26% to $1.1628 after it initially dropped to its lowest since November as investors sold off the dollar broadly, lifting other major rival currencies.

In European markets, EUROSTOXX 50 futures STXEc1 and DAX futures FDXc1 both fell 1.1%. Japan’s Nikkei .N225 dropped 1% as risk-off sentiment prevailed.

“Hopes that the tariff situation has calmed down for this year have been dashed for now – and we find ourselves in the same situation as last spring,” said Berenberg chief economist Holger Schmieding.

Euro touches fresh 7-week lows

Trump’s sweeping “Liberation Day” tariffs in April 2025 sent shockwaves through markets. Investors then largely looked past U.S. trade threats in the second half of the year, viewing them as noise and responding with relief as Trump made deals with Britain, the EU and others.

While that lull might be over, market moves on Monday could be dampened by the experience that investor sentiment had been more resilient than expected in 2025 and global economic growth stayed on track.

U.S. markets are closed on Monday for Martin Luther King Jr. Day, which means a delayed reaction on Wall Street. U.S. stock futures EScv1 were 0.7% lower in early Asian hours. The cash Treasury market was shut, but 10-year futures TYc1 firmed 1 tick.

The implications for the dollar were less clear, although the greenback was broadly lower on Monday. It remains a safe haven, but could also feel the impact of Washington being at the centre of geopolitical ruptures, as it did last April.

The dollar weakness lifted the safe haven yen JPY= and Swiss Franc CHF=. Bitcoin BTC=, a liquid proxy for risk, fell nearly 3% to $92,602.64.

“While you would argue that the tariffs threaten Europe, in fact, it’s actually the dollar that is bearing the brunt of it, because I think markets are pricing in increased political risk premia on the U.S. dollar,” said Khoon Goh, head of Asia research at ANZ.

Capital Economics said the countries most exposed to increased U.S. tariffs were the UK and Germany, estimating that a 10% tariff could reduce gross domestic product in those economies by around 0.1%, while a 25% tariff could knock 0.2%–0.3% off of output.

European stocks are near record highs. Germany’s DAX .GDAXI and London’s FTSE index .FTSE are up more than 3% this month, outperforming the S&P 500 .SPX, which is up 1.3%.

European defence shares will likely continue to benefit from geopolitical tensions. Defence stocks .SXPARO have jumped almost 15% this month, as the U.S. seizure of Venezuela’s Nicolas Maduro fuelled concerns about Greenland.

Surging defence stocks

Denmark’s closely managed crown will also likely be in focus. It has weakened, but rate differentials are a major factor and it remains close to the central rate at which it is pegged to the euro EURDKK=, and not far from six-year lows.

“The U.S.-EU trade war is back on,” said Tina Fordham, geopolitical strategist and founder of Fordham Global Foresight.

Trump’s latest move came as top officials from the EU and South American bloc Mercosur signed a free trade agreement.

HOT SPOTS EVERYWHERE

The dispute over Greenland is just one hot spot.

Geopolitics and technological risks dominate global risks for 2026

Trump has also weighed intervening in unrest in Iran, while a threat to indict Federal Reserve Chair Jerome Powell has reignited concerns about the U.S. central bank’s independence.

Against this backdrop, safe-haven gold XAU=has surged, gaining over 1% on Monday to a record of $4,689.39 per ounce. The yellow metal is up nearly 8% in January, after gaining 64% last year.

Given Trump’s recent Fed attacks, an escalation with Europe could pile pressure on the dollar if it adds to worries that U.S. policy credibility is becoming critically impaired, said Peel Hunt chief economist Kallum Pickering.

“(This) could be amplified by a desire, especially among Europeans, to repatriate capital and shun U.S. assets, which may also pose downside risks to lofty U.S. tech valuations,” he added.

The World Economic Forum’s annual risk perception survey, released before its annual meeting in Davos next week, which will be attended by Trump, identified economic confrontation between nations as the number one concern replacing armed conflict.

A source close to French President Emmanuel Macron said he was pushing for activation of the “Anti-Coercion Instrument”, which could limit access to public tenders, investments or banking activity or restrict trade in services, in which the U.S. has a surplus with the bloc, including digital services.

“With the U.S. net international investment position at record negative extremes, the mutual inter-dependence of European-U.S. financial markets has never been higher,” Deutsche Bank’s global head of FX research George Saravelos said in a note.

“It is a weaponization of capital rather than trade flows that would by far be the most disruptive to markets.”