Investors moved toward safe assets on Monday as Europe readied a response after U.S. President Donald Trump warned of higher tariffs on allies, linking them to his interest in purchasing Greenland.
Trump stated that an additional 10% tariff would apply starting February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and Great Britain. This tariff would increase to 25% on June 1 if no agreement regarding Greenland is reached.
In Asian trading, precious metals and bonds saw gains, while stocks declined and the dollar weakened. The euro, yen, and Swiss franc all strengthened.
Analysts and investors commented on the tariff threats.
Khoon Goh, head of Asia research at ANZ in Singapore, said, "Typically you would think tariffs being threatened would lead to a weaker euro, but ... the impact in FX markets actually has been more towards dollar weakness every time there is heightened policy uncertainty emanating from the U.S."
"I think markets are pricing in increased political risk premia on the U.S. dollar," Goh added.
"The big question now is how much and how hard does Europe push back against President Trump over this issue. For now, it looks like the U.S.-EU trade deal is probably not going to be in place and the U.S.-UK trade agreement as well is now up in the air," Goh said.
Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho in Singapore, noted, "It throws the so-called agreements out of the window now...(and) that reassessment is probably triggering some risk repricing."
"Markets actively have to reassess very key assumptions around euro/dollar, which has got a huge impact on your dollar assumptions, particular recovery stories in Europe, given the latest data led us to believe Germany had just turned a corner," Varathan stated.
"(Trump) is still willing to use tariffs with abandon and making threats and belittling partners. So we're not over the phase," Varathan said.
Charu Chanana, chief investment strategist at Saxo in Singapore, remarked, "Markets have learned that tariff threats get watered down or delayed, so the initial reaction tends to be cautious rather than panic. But linking tariffs to geopolitics feels less like trade bargaining and the uncomfortable truth for markets is that it raises the odds of tariffs becoming a tool for non-trade disputes. This is harder to price, and potentially demands a stickier risk premium."
"Even without big tariff hikes, uncertainty can make companies delay capex and supply-chain decisions, which could be a slower-burn drag on growth. If we get firm dates, sector targets, or EU retaliation, volatility can broaden," Chanana added.
Matt Simpson, senior market analyst at StoneX in Brisbane, said, "Like any time Trump speaks, we question whether he is seriously serious this time, or its just another throw away comment. But given he's brought tariffs into the equation, markets may be under-reacting this time. As the geopolitical fallout from this has serious implications for NATO. And true allies will be revealed."