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- EUR/USD drifts higher to near 1.1625 in Monday’s early European session.
- Europe is prepared to push back on Monday after Trump announced a 10% tariff on goods from European countries.
- Traders expect the Fed to hold rates steady at its January meeting due to a stable labor market and persistent inflation.
The EUR/USD pair gains ground to around 1.1625, snapping the four-day losing streak during the early European session on Monday. The US Dollar (USD) faces some selling pressure against the Euro (EUR) after U.S President Donald Trump threatened escalating tariffs on eight European nations that have opposed his plan to take Greenland. US markets are closed on Monday as the country observes Martin Luther King Jr. Day.
Trump on Saturday announced a 10% tariff on goods from European countries, including Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and the United Kingdom (UK), starting from February 1 and raising the levy to 25% in June until “a Deal is reached for the Complete and Total purchase of Greenland.”
Europe is prepared to push back on Monday after Trump slapped additional levies on allies. European leaders are set to hold an emergency meeting in the coming days as they explore possible retaliation. Concerns over the renewed trade war and the long-term impact of Trump’s latest move drag the Greenback lower and act as a tailwind for the major pair.
“While you would argue that the tariffs threaten Europe, in fact, it’s actually the dollar that is bearing the brunt of it, because I think markets are pricing in increased political risk premia on the U.S. dollar,” said Khoon Goh, head of Asia research at ANZ.
Nonetheless, improving US labor market data last week have pushed back expectations of further Federal Reserve (Fed) rate cuts until June. This, in turn, could help limit the USD’s losses. Financial markets are now pricing in nearly a 95% chance of no change to the benchmark rate at the FOMC meeting on January 27-28, 2026, according to the CME FedWatch tool.
