Trump steps up pressure on the dollar with new tariff threats against Europe

The U.S. dollar is facing fresh headwinds as President Donald Trump considers imposing tariffs on European countries linked to his plan to acquire Greenland. According to analysts, this increases uncertainty surrounding U.S. economic and trade policy.

The Bloomberg Dollar Spot Index slips 0.1% during Asian trading after Trump threatened 10% tariffs on European allies that support Denmark’s position on Greenland. U.S. Treasury futures are trading mixed, while cash markets remain closed due to a public holiday in the United States.

European currencies are finding support, with the Swiss franc performing best among G-10 currencies amid heightened demand for safe-haven assets. The euro rebounds from its lowest levels in nearly two months.

Here is what analysts are saying:

David Forrester, senior strategist at Credit Agricole CIB in Singapore, says Trump’s tariff threats are once again reviving the so-called “sell America” trade. Markets are also watching the “TACO trade,” as Trump may use tariffs as a negotiating tool, which could temporarily support the dollar. He adds that the euro is likely to remain among the most vulnerable currencies as geopolitical risks rise during Trump’s presidency in 2026. Tariffs could intensify cyclical pressure on the euro area economy and further reduce pressure on Russia to end the war in Ukraine.

Chris Weston, head of research at Pepperstone Group, notes that market dynamics suggest U.S. assets, including the dollar, are already carrying a significantly higher political risk premium. This could force foreign investors to reduce their exposure to U.S. assets. While the prevailing belief is that a deal on Greenland will ultimately be reached, he cautions that when sovereignty is involved, there is a risk the situation could evolve in a far more dangerous direction.

Richard Franulovich, head of FX strategy at Westpac Banking Corp., says the geopolitical risks surrounding Greenland are reviving the debate on de-dollarization and highlighting the United States’ large net external liabilities as a key vulnerability.

Mingze Wu, a currency trader at StoneX in Singapore, observes some weakening in the dollar, which appears logical given the U.S. shift toward a more isolationist policy stance. At the same time, he notes that markets have largely become accustomed to tariff threats, suggesting that reactions are likely to remain contained.

Source: Bloomberg Terminal