Dollar down after Trump's tariff threats amid Greenland pursuit

The dollar was slightly lower at the start of the week as traders digested US President Donald Trump's latest tariff threat.

The Dollar Index fell to 99.11 points on Monday, from 99.26 on Friday.

The euro rose to USD1.1635 on Monday from USD1.1615 on Friday. Sterling traded at USD1.3415, rising from USD1.3404.

The EU said on Monday it wanted to engage with the US after President Donald Trump threatened tariffs on European countries in the standoff over Greenland, but was ready to act if needed.

Trump shook Europe on Saturday when he vowed to slap EU members Denmark, Finland, France, Germany, the Netherlands, and Sweden – and non-members Britain and Norway – with extra levies unless Greenland is ceded to the US.

UK Prime Minister Keir Starmer urged the whole country to unite in the face of Trump's threats to invade Greenland and slap tariffs on the UK and other European allies.

Analysts at ING commented: "It is probably a little too early to be dusting off the 'sell America' theme, where Washington's pursuit of Greenland, like the near 50% liberation day tariffs last April, is seen as a spectacular own-goal. Certainly, investors seem very wary of chasing themes like these, which typically look like noisy rhetoric before diplomacy plays out.

"Nonetheless, these developments will add some volatility in an otherwise benign/calm investment environment. On the subject of 'Sell-America', we wrote on Friday that there was very little evidence of 'de-dollarisation' last year. Even if events were to severely escalate, it looks unlikely we would see the kind of 10% dollar sell-off witnessed last year, when the buy-side was exceptionally FX underhedged in its US exposure."

Analysts at ING continued: "Away from Greenland, this week could possibly see President Trump announce his pick to replace Jerome Powell as Federal Reserve Chair. The dollar rallied on Friday when it emerged that the President wanted Kevin Hassett to stay at the National Economic Council, and Kevin Warsh is now seen as the frontrunner – a mild dollar positive if confirmed."

Against the yen, the dollar fell to JPY157.87, from JPY158.08 a day prior. Versus the Swiss franc, it declined to CHF0.7977 from CHF0.8018.

Brown Brothers Harriman analysts commented: "The Bank of Japan is widely expected to keep the policy rate at 0.75% and stick to its hiking bias (Friday). The outlook report will offer clues about the extent of the normalization cycle. Watch out for possible comments about the neutral rate. The BOJ currently estimates the neutral rate to be within a wide range between 1% and 2.5%. A tighter range would signal greater confidence in removing policy accommodation and underpin a firmer JPY."

Versus the euro, the pound faded to EUR1.1525 on Monday from EUR1.1535 on Friday.

Analysts at Barclays commented: "Recently, PM Starmer also announced an intention to seek closer alignment with the EU single market; however, details and the EU's willingness to reciprocate in the absence of free mobility remain unclear. With the risk premium almost fully unwound and data cross-currents yet to be resolved, we remain neutral on the pound."

Versus the Australian dollar, the buck fell to AUD1.4908 from AUD1.4937. Against its Canadian counterpart, the US currency declined to CAD1.3883 from CAD1.3898.