The EUR/USD pair has bounced back to 1.1630 during Asian trading after dropping for four days. This increase comes amid rising demand for safe-haven assets due to uncertainties around the US-Greenland situation. US President Trump has announced a 10% tariff on imports from Denmark, Sweden, France, Germany, the Netherlands, Finland, the UK, and Norway. This tariff will begin on February 1 unless the US can buy Greenland.

EU Response and Monetary Strategies

EU ambassadors plan to prevent these tariffs and are preparing retaliatory actions if necessary. Strong US labor market data may delay more rate cuts from the Federal Reserve until June. Morgan Stanley has updated its 2026 forecast, now predicting rate cuts in June and September instead of January and April. The European Central Bank sets monetary policy for the Eurozone, affecting the Euro’s value through interest rates and inflation data. Economic measures like GDP and trade balance play a role in the Euro’s strength. A good trade balance and a strong economy generally help the Euro, while weak data can weaken it. Major economies in the Eurozone, like Germany and France, significantly influence this. Currently, the EUR/USD is trading around 1.1630. However, this position is precarious as we approach the February 1 deadline for potential US tariffs linked to the Greenland dispute. This looming deadline is the main source of uncertainty for the next two weeks, making the market expect significant price movements.

Impact on Markets and Currency Strategies

The growing uncertainty is visible in the options market. One-month implied volatility for the EUR/USD pair has jumped from around 7% to 11% in recent days. Traders should think about strategies that benefit from increased price swings, no matter the direction. The US dollar is gaining support due to changing expectations from the Fed. The market is now anticipating rate cuts in June instead of this quarter. This is backed by recent US inflation data from December 2025, which was at 2.8%. In comparison, the Eurozone’s inflation rate of 2.3% limits how much the European Central Bank can ease its policies, creating a struggle. This tariff situation resembles the market conditions during the US-China trade disputes in 2018 and 2019. Back then, sudden news often caused reversals that overlooked economic data. A recent German manufacturing PMI report showing a contraction at 48.5 suggests the Eurozone economy is on weak ground and vulnerable to trade shocks. The US dollar faces mixed risks. Rising tensions usually boost its appeal as a safe haven, but potential tariffs and likely European retaliation could weaken the US economic outlook and the dollar. Traders should be cautious about holding large, unhedged positions as we near the deadline. Create your live VT Markets account and start trading now.

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