Tariffs and Structural Changes: Why the Euro Could Gain

The impact of Greenland-related tariffs on the euro and the dollar is binary

The assessment of the effect on the euro versus the dollar from a potential escalation of tariffs regarding Greenland is not as straightforward as it may seem. The conclusions are binary and depend on whether the focus is on cyclical or structural effects. From a cyclical perspective, the euro is under pressure against the dollar, as the eurozone economy is more sensitive to global trade. From a structural perspective, however, the euro gains support through the de-dollarization process. This also strengthens the positive outlook for the Swiss franc as a safe-haven currency.

1. The effect of tariffs on the euro and dollar is unclear; against the Swiss franc it is more pronounced

News about Greenland tariffs adds additional economic and political uncertainty and can have a binary effect on the euro versus the dollar, depending on whether the cyclical or structural channel is considered. In the long term, as long as the geopolitical situation does not create a prolonged risk-averse market environment—which would elevate structural factors as the main driver for G-10 currencies—we believe that cyclical forces will have a greater impact on the euro versus the dollar. They may support the dollar at the start of the year, but will gradually turn in favor of the euro during 2026, with potential to reach levels above $1.20 remaining realistic.

Weekend tariff news also supports our view for safe-haven currencies such as the Swiss franc in 2026, with the euro likely declining versus the franc toward the lower end of the expected range of 0.92–0.95.

2. Tariffs: cyclically negative for the euro versus the dollar

Threats of U.S. tariffs put the euro under significant pressure if attention is focused on cyclical effects. The reason is clear: the EU is a large and open economy with an export-to-GDP ratio of 14.1%, with 20.4% of goods exports going to the U.S. (2024). The U.S. is a large but relatively closed economy with an export ratio of just 7.1%.

If President Donald Trump imposes additional tariffs of 10% (rising to 25% on June 1), tariffs for Germany would increase by 37% compared with January 2025, and for France by 35.9%. The U.S. economy would be affected by retaliatory measures and via the inflation channel, but likely to a lesser degree than the eurozone. The risk is that the eurozone economy (expected growth 1.2% in 2026) would lag behind the U.S. (expected growth 2.1%), which would support the dollar.

3. Tariffs: structurally positive for the euro versus the dollar

From a structural perspective, the euro could gain support through the de-dollarization process. Recent changes in U.S. policy confirm a new world order that makes strategies to diversify currencies away from the dollar more attractive. This activates the de-dollarization process and structurally strengthens the euro’s position.

Ongoing support for gold and/or the Swiss franc is also expected, reinforcing safe-haven currencies. The euro could receive additional support if the Greenland situation encourages the EU to strengthen its defense plans and possibly issue joint debt, which would be a structural positive for the euro.

-Source: Bloomberg Terminal