LONDON, Jan 18 (Reuters) - Global markets are facing volatility after President Donald Trump vowed to slap tariffs on eight European nations until the U.S. is allowed to buy Greenland, news that pushed the euro to a seven-week low in late Sunday trading.
Trump said he would impose an additional 10% import tariff from February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain, which will rise to 25% on June 1 if no deal is reached.
Major European Union states decried the tariff threats over Greenland as blackmail on Sunday. France proposed responding with a range of previously untested economic countermeasures.
As early trade kicked off in Asia-Pacific, the euro fell 0.2% to around $1.1572, its lowest since November. Sterling also dipped, while the yen firmed against the dollar.
"Hopes that the tariff situation has calmed down for this year have been dashed for now - and we find ourselves in the same situation as last spring," said Berenberg chief economist Holger Schmieding.
Trump's sweeping "Liberation Day" tariffs in April 2025 sent shockwaves through markets. Investors then largely looked past U.S. trade threats in the second half of the year, viewing them as noise and responding with relief as Trump made deals with Britain, the EU and others.
While that lull might be over, market moves on Monday could be dampened by the experience that investor sentiment had been more resilient than expected in 2025 and global economic growth stayed on track.
U.S. markets are closed on Monday for Martin Luther King Jr. Day, which means a delayed reaction on Wall Street.
The implications for the dollar were less clear. It remains a safe haven, but could also feel the impact of Washington being at the centre of geopolitical ruptures, as it did last April.
Bitcoin, a liquid proxy for risk that is open to trade at the weekend, was steady, last trading at $95,330.
Capital Economics said countries most exposed to increased U.S. tariffs were the UK and Germany, estimating that a 10% tariff could reduce GDP in those economies by around 0.1%, while a 25% tariff could knock 0.2–0.3% off output.
European stocks are near record highs. Germany's DAX and London's FTSE index are up more than 3% this month, outperforming the S&P 500, which is up 1.3%.
European defence shares will likely continue to benefit from geopolitical tensions. Defence stocks have jumped almost 15% this month, as the U.S. seizure of Venezuela's Nicolas Maduro fuelled concerns about Greenland.
Denmark's closely managed crown will also likely be in focus. It has weakened, but rate differentials are a major factor and it remains close to the central rate at which it is pegged to the euro, and not far from six-year lows.
"The U.S.-EU trade war is back on," said Tina Fordham, geopolitical strategist and founder of Fordham Global Foresight.
Trump's latest move came as top officials from the EU and South American bloc Mercosur signed a free trade agreement.
HOT SPOTS EVERYWHERE
The dispute over Greenland is just one hot spot.
Trump has also weighed intervening in unrest in Iran, while a threat to indict Federal Reserve Chair Jerome Powell has reignited concerns about the U.S. central bank's independence.
Against this backdrop, safe-haven gold remained near record highs.
Given Trump’s recent Fed attacks, an escalation with Europe could pile pressure on the dollar if it adds to worries that U.S. policy credibility is becoming critically impaired, said Peel Hunt chief economist Kallum Pickering.
"(This) could be amplified by a desire, especially among Europeans, to repatriate capital and shun U.S. assets, which may also pose downside risks to lofty U.S. tech valuations," he added.
The World Economic Forum's annual risk perception survey, released before its annual meeting in Davos next week, which will be attended by Trump, identified economic confrontation between nations as the number one concern replacing armed conflict.
A source close to French President Emmanuel Macron said he was pushing for activation of the "Anti-Coercion Instrument", which could limit access to public tenders, investments or banking activity or restrict trade in services, in which the U.S. has a surplus with the bloc, including digital services.
"With the U.S. net international investment position at record negative extremes, the mutual inter-dependence of European-U.S. financial markets has never been higher," said Deutsche Bank's global head of FX research George Saravelos in a note.
"It is a weaponization of capital rather than trade flows that would by far be the most disruptive to markets."
(Reporting by Karin Strohecker, Dhara Ranasinghe and Samuel Indyk in London and Gregor Stuart Hunter in Singapore; Editing by Alexander Smith and Nia Williams)
