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The sparsely populated Greenland held the world's attention to start the week.
Currency markets were rocked on Monday by Donald Trump’s plan to slap tariffs on Nato members supporting sovereignty for Greenland amid the ongoing crisis.
Stock markets were strained in Asia and Europe, safe-haven assets including gold and the Swiss franc strengthened, while the US dollar weakened sharply yesterday. Despite those major moves, we may see the biggest volatility today. That’s because America returns from a day off and we could also get the US Supreme Court’s hotly anticipated ruling on the legality of the trade war.
Justices in Washington have the chance to delegitimise Trump’s tariff threat when they issue their ruling. Republican leaders have suggested they are optimistic about the outcome, even if the legal community signals scepticism that the executive branch can set trade barriers without the approval of Congress. The result will have a major bearing on the US dollar and the American economy.
For the time being, Europe is scrambling to fight off a military threat as well as an economic one. Denmark deployed additional troops to Greenland on Monday as Trump offered a coy “we’ll see” when asked if he planned to seize the nation by force.
This morning brought more key news, as we just heard the United Kingdom’s headline jobless rate held steady at 5.1% in November. Meanwhile, average earning increases fell to 4.7% and 4.5% (including and excluding bonuses) – the slowest pace of growth in five years.
In what might turn out to be serendipitous timing, the world’s financial elite are travelling to Switzerland for the annual Davos conference this week. Donald Trump is bringing a team, and European leaders are hopeful to talk him down in the Alps. The president can also expect to hear from longtime supporter Nigel Farage, who said he’d be “having words”.
And finally, Japanese prime minister Sanae Takaichi has called a snap election seeking to capitalise on a swell of momentum and build her parliamentary majority. Japanese stock markets have roared ahead as rumours of an election swirled, although the yen and government bonds have fallen.
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GBP: Unpredictable inflation spells danger
For technical reasons (specifically the date chosen to measure consumer prices around Christmas), analysts at major banks are struggling to forecast tomorrow’s inflation release. Inflation is expected to hold steady or tick up slightly, but the final number may hinge on how close to Christmas the sample was taken, along with how much prices rose in the festive season. The answer to that question could have a big impact on the pound.
GBP/USD: the past year
EUR: Holding up under the heat
Many might have expected the euro to fold under the threat of another painful round of tariffs. That wasn’t the case on Monday, when the euro strengthened by half a cent against the US dollar.
GBP/EUR: the past year
USD: Trade tensions hit dollar
The US dollar was the big loser from Monday’s chaotic trading. The dollar index shed 0.3% as the pound and euro strengthened by over half a cent. American markets could well have a bumpy return to their desks today as they deal with the Greenland crisis, a supreme court ruling and Emmanuel Macron’s threat to use the EU’s anti-coercion instrument.
EUR/USD: the past year
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