"The dollar suffers most": how markets reacted to the US-EU trade war

The dollar fell, silver and gold hit new all-time highs on Monday, January 19, after U.S. President Donald Trump threatened eight European countries, including Germany, France and the United Kingdom, with 10 percent duties over the weekend because they opposed his attempts to gain control of Greenland. EU countries, in turn, have begun considering retaliatory measures against the US for up to €93 billion, the Financial Times reported.

Against the backdrop of Trump's statements and the EU's preparation of retaliatory measures, the first reaction at the beginning of Asian trading in the foreign exchange market on January 19 was a sell-off in the euro and pound sterling, as a result of which the currencies fell to a seven-week low of $1.1572 and a one-month low of $1.3321, respectively, noted Reuters. However, as the EU trading day began, both currencies bounced off their lows, with the dollar already under pressure. The euro and pound sterling meanwhile recovered and continued trading in the green zone: +0.29% and +0.16% respectively. The US dollar declined by 0.46% against the Swiss franc, considered a protective asset, and fell by 0.17% against the Japanese yen.

"While it could be argued that [Trump's] duties threaten Europe, it's actually the dollar that suffers the most because I think markets are already pricing in increased political risk premiums associated with the U.S. dollar," Kun Goh, head of Asia research at ANZ Financial Group, remarked to Reuters.

Gold and silver prices meanwhile jumped to new all-time highs, with gold hitting $4682 per ounce (+1.88%) and silver trading at over $93 (+5.74%).

S&P futures fell nearly 1 percent, in Europe, Euro Stoxx 50 and German DAX futures fell 1.1 percent, while FTSE futures lost 0.4 percent.

Cryptocurrencies, whose quotes are also often used as an indicator of investors' appetite for risk, also fell on January 19: bitcoin lost 2.5%, Ethereum (ether) fell by 3.2%.

"The trade war between the U.S. and the EU has resumed," geopolitical strategist and founder of Fordham Global Foresight Tina Fordham commented to Reuters on the situation."Hopes that the tariff situation had stabilized for this year have so far been dashed and we are in the same situation as last spring [when Trump announced duties ranging from 10% to almost 50% on almost all goods coming into the United States]," added Berenberg chief economist Holger Schmieding (quoted by Reuters).

Deutsche Bank analysts, in turn, noted that Europe is the largest creditor of the U.S.: European countries own $8 trillion in U.S. bonds and stocks, which is almost twice as much as the rest of the world, Reuters points out. Geopolitical tensions, according to analysts, may lead to the fact that EU countries decide to consider returning some of these funds back to Europe, the agency notes.

"With the U.S. net international investment position at record lows, the mutual dependence of European and U.S. financial markets has never been higher," said George Saravelos, head of global monetary research at Deutsche Bank (quoted by Reuters). "Using capital rather than trade flows as a weapon is something that could prove far more disruptive to markets," he added.

Tariffs of 10% on all imported goods from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland, will take effect in the US on February 1, Trump announced on Saturday, January 17. If there is no agreement on Greenland, duties on goods from these European countries will be raised to 25% on June 1, he threatened.

This article was AI-translated and verified by a human editor