Trump Brings Trade Wars Back into Focus
We haven’t yet made it through the first month of 2026, and already trade wars and tariffs are giving financial markets grief. With Trump not seeing eye-to-eye with his European NATO allies over the US’s ambitions for Greenland, the threats of additional 10% to 25% tariffs on certain European countries have delivered a fresh – and rather unwanted – dose of uncertainty for traders. With the initial 10% tariffs due to take effect from the beginning of next month (on Denmark, Norway, Sweden, the UK, France, Germany, the Netherlands, and Finland), followed by an increase to 25% on 1 June, the US President has left room for negotiations to occur – and that’s what risk assets may be hoping happens on the sidelines of Davos this week (where the World Economic Forum, or ‘WEF’, is taking place).
Precious metals are again making the best of the new tariff curveball sent by Trump, with gold and silver capitalising on the economic uncertainty posed by the US-NATO standoff over Greenland. The negative economic consequences that could arise for the tariff-targeted countries – and potentially for the US too – have once again positioned gold as a favourite asset to hold amid the prevailing geopolitical uncertainties. Gold raced beyond $4,700 and could be eyeing a run to $4,800 in the absence of any de-escalatory moves between the US and its so-called allies over the Greenland issue, particularly if the dollar continues to track lower. Levels to watch for gold include resistance around $4,795, with support at $4,700 and $4,630. Silver also retains its bullish look, having hit the $95 mark. Trump’s unconventional approach to policy and diplomacy suits gold and silver well, as evidenced by the performance of precious metals since his second term commenced.
In FX, the USD has taken a hit from the threats of additional tariffs against NATO allies. The DXY (Dollar Index) has slipped back below the 99 handle on concerns about how the US economy would fare under potential retaliatory tariff measures from EU countries. The dollar has fallen around 1% this week, while safe-haven currencies such as the yen have made up some ground against the greenback. This activity in currency markets mirrors what we witnessed in 2025: tariff and trade-war escalations tended to hurt the US currency, while negotiated trade deals (and de-escalation) helped the dollar. So, if we do end up getting some sort of compromise or back-down from the US or NATO regarding Greenland, this would likely help the dollar to rebound – if that historical pattern holds.
On the economic calendar this week, the US Core PCE Price Index is probably the most important release (due Thursday US time), as this is the inflation gauge that the US central bank tends to watch more closely than others. Any significant deviation either side of the expected 0.2% month-on-month rise could reshape interest-rate expectations for the Fed.
But it is geopolitics that the market is mostly concerned with right now. Trump’s desire for Greenland, combined with the ambitions of NATO countries to defend sovereignty while at the same time avoiding harsh economic tariffs, contains all the ingredients needed to make this week’s WEF meeting in Davos a particularly spicy event. There is a blanket of uncertainty hovering over markets regarding this latest tariff episode from Trump. A resolution of sorts between the US and Europe seems likely, but whether this takes days, weeks, or even months to reach a solution is the big question – and one that is creating a significant drag on risk assets. Traders will be looking to Davos this week for signs that US-EU tensions are either thawing or heating up.
