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• 
  Markets had a turbulent week following the surprise announcement on January 17th by the US president, Donald Trump, of his intention to levy 10% tariffs on Denmark and seven other European countries until they agreed to sell Greenland to the US. When markets reopened on Monday, equities sold off sharply, Treasury yields soared as investors fled US bonds and gold surged as a safe-haven bid. The US dollar, atypically, weakened rather than strengthened during the risk-off move.
  


• 
  
  Relief came swiftly.
  
  By the evening of January 21st Mr Trump announced that he would drop the tariff threat after securing a NATO framework agreement on Arctic security, which appears to include some increased US control over at least portions of Greenland. The S&P 500 staged an immediate recovery, erasing most of the week’s losses, and Treasury yields retreated from their highs. The classic pattern of risk assets selling off on bad news and recovering on its resolution played out as expected, at least for domestic US markets. A potential near-term policy shock had been avoided with the climbdown and announcement of a framework to resolve Mr Trump’s ambitions with respect to Greenland.
  


• 
  
  Gold and the US dollar, however, tell a different story.
  
  Gold kept rising—ending the week up almost 7%—whereas the US dollar stayed below the level it was before the tariff announcement. A useful way to read that divergence is that even though the near-term event risk faded, the medium- to longer-term policy uncertainty and regime risk did not. Equities and Treasuries can reprice quickly once an immediate tariff cliff is removed: the near-term hit to earnings and inflation expectations is pared back. Foreign exchange and gold are more sensitive to the risk premium investors demand to hold US dollar exposure in the first place. As the episode probably raised the perceived probability of further abrupt policy moves—even if this specific threat was withdrawn—foreign investors might seek to reduce unhedged US dollar exposure or increase hedging without selling the underlying US assets. That would keep the US dollar soft even as rates and equities recover. Gold prices then rise both mechanically from a weaker US dollar and from greater “insurance” demand against the increased policy uncertainty.
  


• 
  
  Despite the tariff climbdown and the pledge not to use force to gain the territory, we still believe that the ultimate resolution of the Greenland dispute is highly uncertain
  
  . The “framework” floated after Mr Trump’s meeting with NATO secretary-general, Mark Rutte, is thin on detail, and any attempt to translate it into a durable arrangement will run into political and legal constraints, most obviously the need for buy-in from Greenland and Denmark, where domestic constituencies have been clear that sovereignty is a red line.
  
  More broadly, the episode is further evidence of Mr Trump’s increasingly assertive and erratic foreign policy.
  
  In our view, a tactical retreat does not undo the damage already done to transatlantic trust. Speeches at the World Economic Forum by leaders including Canadian prime minister, Mark Carney, German chancellor, Friedrich Merz and French president, Emmanuel Macron point to
  
  a more concrete European assessment that the US is becoming a less reliable actor, and that there has been an erosion of confidence that will not be reversed quickly by a single climbdown
  
  .
  

The analysis and forecasts presented in this article are drawn from EIU’s

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Fri, 23rd Jan 2026



Article tags



Business


Geopolitics


Supply chains


Trade


Global


United States


Country Analysis