Global markets are reacting to President Trump’s announcement of a 10% US import tariff on February 1st, set to rise to 25% on June 1st. This affects Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland. The European Stoxx future is down 1.3%, and the S&P future is 0.9% lower. The tariff will remain until a deal is reached on the US’s ‘complete and total purchase of Greenland’.
Currencies affected by this news initially weakened, but the US dollar saw some renewed weakness with the return of the ‘sell America’ trade. Factors like the decision on the new Fed Chair and a possible Supreme Court ruling on the legality of using IEEPA for global tariffs could further weaken the dollar. The Swiss franc and yen have experienced strength due to safe-haven flows.
The Dollar’s Reaction to Tariffs
The dollar’s sell-off is moderated by the fact that tariffs are effective from February, allowing room for potential negotiation. However, if Europe retaliates with tariffs on EUR 93bn worth of goods, as considered under a suspended plan, the situation could worsen. President Macron advocates extending the EU’s anti-coercion instrument beyond trade tariffs.
Looking back at the Greenland tariff threat in late 2025, we saw a classic example of headline risk creating sharp, short-term market moves. The immediate reaction was a flight from risk, hitting European and US stock futures, which should remind us to be prepared for sudden geopolitical announcements. This event serves as a playbook for how markets are likely to react to similar trade tensions going forward.
The initial dollar weakness during that episode, which saw the DXY dip 1.2% in under a week, showed that investors are willing to sell US assets during periods of self-inflicted trade turmoil. This “sell America” instinct is a key takeaway, suggesting that short-dollar positions can be profitable when the US initiates aggressive trade policy. As of January 2026, with the US trade deficit widening by 4% in the last quarter of 2025, any new tariff threats could amplify this reaction.
Safe Haven Currencies and Market Volatility
As expected, the Swiss franc proved to be the most reliable safe-haven currency during the 2025 scare. The USD/CHF pair dropped nearly 2% in three days, outperforming even the Japanese yen. This reinforces the strategy of buying Swiss francs against the dollar or euro as a primary hedge against European-centric political risk.
The key lesson for derivative traders was in volatility markets, where the VIX index jumped from a low of 15 to over 24 in two days. This highlights the value of holding long volatility positions, such as VIX calls or futures, as a direct and effective hedge. In the coming weeks, with implied volatility currently low, owning some cheap, out-of-the-money options on the VIX is a prudent strategy.
We should also remember how quickly the threat of retaliation from the European Union became a factor. The EU’s anti-coercion instrument, which they nearly activated, shows that Europe is no longer a passive participant in these disputes. Given that the EU’s trade surplus with the US grew to a record EUR 210 billion in 2025, their leverage to retaliate with their own tariffs is now even stronger.
