Trade War Fears Reignited: Trump Threatens Tariffs on Europe Over Greenland Dispute

Global risk sentiment took a sharp hit on Monday after President Donald Trump issued an ultimatum to European allies, threatening significant tariffs on eight nations—including the UK, France, and Germany—over their opposition to US ambitions regarding Greenland. The geopolitical standoff has immediately weighed on European currencies while bolstering demand for safe-haven assets.

Tariffs as Diplomatic Leverage

The dispute centers on Washingtons strategic interest in Greenland. In a move that caught markets off guard, President Trump announced plans to impose a 10% import tariff on the opposing nations starting February 1. He further escalated the threat, stating that duties could rise to 25% by June if a deal regarding the “complete and thorough purchase” of the territory is not reached.

This aggressive stance has drawn sharp rebukes from European leaders. UK Prime Minister Keir Starmer termed the use of tariffs against allies as “completely wrong,” though he emphasized that London is not currently seeking retaliatory measures, aiming instead to de-escalate through dialogue. Meanwhile, EU Commission President Ursula von der Leyen faces criticism for what some diplomats describe as a “weak” initial response, raising concerns about the EU's readiness to handle a potential economic conflict.

Market Impact: EUR and GBP Under Pressure

Foreign exchange markets reacted swiftly to the rising trade tensions:

• EUR/USD: The Euro faced renewed selling pressure. Analysts at ING noted that the tariff threats are “unwelcome news for European industry,” hitting sentiment just as the sector was attempting to recover from previous volatility. The single currency is also grappling with internal data showing Eurozone inflation dipping below target, fueling dovish ECB expectations.
• GBP/USD: Sterling lost ground as the UK found itself in the crosshairs of the tariff list. The threat compounds existing economic headwinds for Britain, following gloomy IMF growth forecasts.
• Risk Sentiment: Equity futures across Europe and the US slid, while volatility indices ticked higher. The prospect of disrupted trade flows between the US and its traditional transatlantic partners has forced investors to reassess the global growth outlook for 2026.