President Trump rounded on European allies over Greenland while his administration started a criminal investigation against the country’s central bank chief
The Trump administration began the week by starting a criminal investigation into the chairman of the Federal Reserve (Fed), and ended it by threatening to impose tariffs on Nato allies if they oppose the president’s takeover of Greenland.
For the moment, market reaction has been relatively muted. The dollar continued to rally against the euro, regaining a little value after a punishing 2025. The euro has weakened by over 1.2% against the greenback in the last month, but remains nearly 13% up over the last 12 months. The pound also slid against the dollar but rallied after better-than-expected UK GDP figures.
Looking to the longer term, Mr Trump’s unconventional tactics for achieving his aims could create difficulties down the line, as markets may react nervously to renewed tariff threats. Trump has threatened 10% tariffs on eight European countries, including the UK, Germany, France and the Netherlands, beginning 1st February. He said the tariffs would increase to 25% in June if resistance to his Greenland plans continues. Retaliatory measures against US imports or corporate America more broadly can’t be ruled out, risking exchange rate turmoil.
The threat to Fed independence
The criminal investigation into Fed Chairman Jerome Powell could prove equally disruptive after the announcement was widely interpreted as an attack on the Fed’s independence. If the credibility of the world’s most important central bank is considered compromised, markets could react in unpredictable and potentially dangerous ways.
A fall in trust in US monetary policy could lead to a significant weakening of the dollar and severe exchange rate volatility. We’re not there yet, but the investigation is one to watch.
The week ahead:
Markets will be keenly focused on any European response to Trump’s tariff threat, and the potential for a new trade war.
Elsewhere, PMI (Purchasing Manager Index – snapshots of economic confidence) will be released in the eurozone (Tuesday), along with inflation rate data (Monday). Unemployment figures in the UK (Tuesday) will hint at the underlying strength of the economy. US GDP figures will be released on Thursday.
