Over the weekend, the US President announced a 10% tariff on goods from eight European countries as part of a plan involving Greenland. On Monday, US stock and bond markets were closed for Martin Luther King Jr. Day. The tariffs will affect goods from Denmark, Sweden, France, Germany, the Netherlands, Finland, the UK, and Norway starting February 1. If no agreement on Greenland is reached by June 1, the tariff will increase to 25%. The European Union is considering retaliatory tariffs on €93 billion worth of US imports, which had been put on hold earlier.

Currency Movements

The US Dollar Index remained steady at around 99.00 due to the market closures. The USD performed best against the Japanese Yen, while its value changed slightly against other currencies. Gold prices climbed near $4,690 in response to rising tensions between the US and Europe. Investors view gold as a safe option during times of geopolitical and economic uncertainty, leading to increased buying from central banks. Gold tends to rise when the US Dollar and US Treasuries decline. This week, we expect important economic data from the UK, Germany, Japan, and the Eurozone, along with key US reports and a speech by Trump. Reflecting on the market shock in 2025, unexpected tariffs on European goods due to a Greenland purchase plan caused significant risk aversion and demonstrated how quickly geopolitics can disrupt currency markets. In the coming weeks, focus on assets that thrive in uncertain situations. Last year’s spike in gold to nearly $4,700 per ounce marked a clear shift toward safety, and that trend continues. Central banks have maintained their buying patterns, with the World Gold Council reporting over 1,000 tonnes purchased in 2024 for the second year in a row, providing a solid support for prices. Continued institutional demand suggests that buying call options on gold futures (GC) is a smart way to benefit from potential new global tensions.

Financial Strategies Amid Currency Volatility

The US Dollar’s weakness in early 2025 stemmed from tariff concerns, but its current softness stems more from interest rate policies. After peaking in 2024, US core PCE inflation has decreased to just under 3%, allowing the Federal Reserve to start rate cuts seen at the end of last year. Traders might consider using options to bet on ongoing dollar weakness, like purchasing puts on the Invesco DB US Dollar Index Bullish Fund (UUP). The EUR/USD rallied to 1.1650 during last year’s tariff dispute but quickly fell as stronger economic fundamentals took charge. Europe’s economy faces ongoing challenges, as shown by last year’s German ZEW Economic Sentiment index, which spent months in negative territory. Thus, selling out-of-the-money call options on EUR/USD could be an effective strategy to earn income while betting against significant upward movement. The Japanese Yen gained strength against the dollar last year as a safe-haven currency, even amid political unrest like a snap election. The Bank of Japan has made gradual but important changes to its extremely loose monetary policy, boosting the yen’s appeal. With this shift in mind, consider long positions in yen futures or call options on the CurrencyShares Japanese Yen Trust (FXY) to profit from safe-haven flows and policy adjustments. The key takeaway from the 2025 Greenland incident is how quickly unexpected events can create volatility in otherwise stable markets. The CBOE Volatility Index (VIX) is currently low, making protective options more affordable than during previous spikes. Buying long-dated put options on equity indices like the S&P 500 (SPX) can be a wise way to hedge your portfolio against future geopolitical surprises. Create your live VT Markets account and start trading now.

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