President Trump’s renewed push to acquire Greenland has reignited fears of transatlantic trade tensions.
The UK and several other European countries face a proposed 10% US import tariff from the 1st February if no deal is reached over Greenland and this will rise to 25% if no deal is achieved by the 1st June. As we know, Trump has a track record of using these tariff threats as a negotiating tactic and a blunt instrument to get his way on the global stage. However, Denmark clearly has no interest in selling and Europe doesn't appear to want to back down on Trump’s demands this time around.
So far, market reaction has been relatively muted and currency markets are not yet signalling a renewed “Sell America” trade. I guess we've been here many times before and, for the most part, Trump’s most aggressive tariff threats have either failed to materialise or been rolled back quickly. Therefore, it seems the base case scenario for many investors is to expect a similar outcome this time around (i.e. Trump’s bark is worse than his bite). That said, given the unpredictability of the Trump administration, nothing can be taken for granted and the issue is likely to remain a key driver of sentiment in the near term.
In other news, UK growth and industrial production data surprised to the upside last week. November GDP rose by 0.3% versus expectations for 0.1% growth. However, while this data is encouraging, monthly GDP data tends to be very volatile and the lag in October suggests that the economy would have only grown by around 0.1%-0.2% in Q4 2025. Even so, markets have pared back expectations for future BoE rate cuts, with the next 0.25% cut not fully priced in until June this year.
As a result, the GBP/USD touched the lower end of where it's traded so far this year but has since clawed back around half a cent to low 1.34s (market rate). The GBP/EUR rate has started the year positively but has been caught in a tight 0.5 cent range over the past week (low 1.15s). The EUR/USD is down just over 1% from the start of the year.
Looking ahead, along with developments over the Greenland situation, markets will focus on UK labour data (Tues), UK inflation (Weds) and the forward-looking PMI data sets from the UK, EU and US (Fri).
