Risk Appetite Returns: Markets Rally as US-Europe Trade Tensions Thaw

Global markets breathed a collective sigh of relief on Thursday as the rhetoric surrounding a potential US-EU trade war softened, sparking a rally in risk-sensitive assets and weighing on safe-haven flows. The de-escalation comes amid reports of diplomatic progress and a temporary shelving of immediate tariff threats by the United States.

Diplomatic Breakthrough or Delay?

President Trump claimed a “framework agreement” had been reached with NATO regarding the strategic future of Greenland, asserting that the US had secured its key objectives. While Denmark has firmly rebuffed claims of sovereignty transfer, the market interpreted the dialogue as a signal that the threatened 25% tariffs on European goods might be paused.

This geopolitical cooling had immediate impacts on currency markets:

• GBP/USD rallied, capitalizing on the improved risk environment.
• Silver (XAG/USD) consolidated near record highs, trading around $93.90.
• EUR/USD stabilized as the immediate threat of a trade shock to the Eurozone economy dissipated.

The “Sell America” Threat: More Bark Than Bite?

Earlier in the week, markets were rattled by headers that European pension funds—specifically in Denmark—were dumping US Treasuries in retaliation for political pressure. However, a deeper dive into the data suggests these moves are isolated.

Citigroup analysis reveals that European investors have been the primary buyers of US debt over the last six months, accounting for nearly 80% of foreign inflows into Treasuries between April and November. While political noise persists, the structural liquidity depth of the US Treasury market continues to attract European capital, countering the narrative of a systemic divestment.

Analyst View

Market strategists note that while the immediate tariff threat has receded, the underlying friction remains. “The relief rally is justified, but the leverage of US trade policy means volatility is dormant, not dead,” noted analysts covering the G10 space. For now, the focus shifts back to fundamental drivers, where the US growth advantage remains the dominant theme.