As we have already grown accustomed to, Donald Trump once again turned global trade relations upside down over the weekend, threatening to impose higher tariffs on eight European countries that oppose the U.S. takeover of Greenland.
Key points:
- The Polish zloty (PLN) weakens modestly after the MPC meeting.
- Trump threatens tariffs against countries opposing the Greenland acquisition.
- Higher tariffs are set to come into force in February.
- U.S. data point to a low number of layoffs.
- Eurozone PMI indicators should confirm an economic rebound.
- The UK economy rebounds in November.
U.S. tariffs on Denmark, Finland, France, the Netherlands, Germany, Norway, Sweden, and the United Kingdom are to be raised by 10 percentage points if an agreement on Greenland’s acquisition by the United States is not reached by February 1, and by a further 15 percentage points if no deal is reached by June 1. It remains unclear what further steps the United States might take.
This is not the first time Trump has used tariff threats as a negotiating tactic and a coercive tool to push his agenda on the international stage. Denmark, however, has no intention of selling the island, and other European countries appear equally unwilling to yield to Trump’s demands.
This time, the initial reaction in the foreign exchange market was limited, and there are still no clear signs that a renewed “sell America” trade is gaining momentum. We refrain from drawing hasty conclusions. This is not the first such episode—historically, Trump has often failed to follow through on his threats, or has quickly backed away from them. We expect a similar outcome this time as well, although the unpredictability of the White House administration means that nothing can be taken for granted.
Poland: Focus on the Monetary Policy Council
In Poland, attention centered on the first Monetary Policy Council (MPC) meeting of the year. While it did not deliver any major surprises, it reinforced market expectations of further interest rate cuts ahead. In our view, this contributed to the modest sell-off in the zloty.
The coming days will bring the first macroeconomic data for 2026, including preliminary PMI readings for major economies (Friday, January 23). However, markets are likely to focus primarily on developments related to a potential escalation of the trade war on both sides of the Atlantic—especially Europe’s response. We will be particularly alert to any signs of a return of the “sell America” trend observed in April.
PLN
Although last week’s MPC meeting—fully in line with expectations—did not result in a rate cut, the tone of Thursday’s press conference by Adam Glapiński, President of the National Bank of Poland, can be described as moderately dovish. In our opinion, this supported the modest weakening of the zloty: EUR/PLN broke out on Thursday afternoon from the very narrow range in which it had traded since the start of the year.
We did not observe a similar move in other regional currencies, suggesting that domestic factors played a key role.
Glapiński’s remarks were not overly subtle. He acknowledged that there is room for further interest rate cuts, likely toward around 3.5%. While this may not be a major surprise, it likely dispelled lingering doubts among the biggest skeptics regarding the prospects for continued monetary easing in Poland. The inflation path remains fundamental in this context and, according to the central bank president, inflation is expected to trend lower. One of the key risks remains wage dynamics—data due on Thursday (January 22) should show where wage growth stood in December.
EUR
We are already seeing clear signs that Germany’s powerful fiscal stimulus is having the desired effect on economic activity in the euro area. Industrial production in November surprised to the upside, posting a solid 2.5% increase. We would not be surprised if the January PMI readings (Friday, January 23) generated similar enthusiasm, in line with the current economic consensus.
Any positive surprises in euro area data should support euro appreciation. That said, geopolitical concerns related to Greenland and new U.S. tariffs may exert a stronger influence in the near term. The main fear is that the latest U.S. protectionist measures could undermine the EU–U.S. trade framework and trigger a destructive trade war that would damage global growth.
It is often said that Trump ultimately always backs down—and while we suspect this may again be the case, until that happens markets should expect elevated volatility.
USD
The U.S. dollar has shown resilience despite concerns about institutional degradation in the United States. Reports of a criminal investigation initiated by Trump against Jerome Powell, the Chair of the Federal Reserve, have so far had only a limited impact on the currency. Markets likely do not expect the matter to escalate significantly.
Solid macroeconomic data and strong equity market performance continue to support the dollar. Last week’s jobless claims confirmed that despite a recent slowdown in job creation, layoffs remain low, allowing the Fed to remain on hold for now.
The key data release this week is the November PCE inflation report (Thursday, January 22). In the short term, however, the most important factor will likely be the renewed wave of uncertainty surrounding U.S. trade policy. While markets have so far reacted calmly and the dollar has held its ground, the situation could change rapidly if Trump intensifies pressure to force a Greenland deal.
GBP
Last week finally brought some positive news for the UK economy, with significant upside surprises in the latest GDP and industrial production data. Economic performance in November proved unexpectedly strong despite considerable uncertainty surrounding the autumn budget.
We remain cautious, however. Monthly GDP figures tend to be volatile, and the slight decline in activity in October suggests that UK GDP likely grew by only 0.1–0.2% in Q4, effectively stagnation. Even so, swap markets continue to push back expectations for further Bank of England rate cuts, with a 25 bp cut now fully priced only for June.
The latest UK labor market data (Tuesday, January 20) take on added importance, as they are expected to confirm the sharp slowdown in job creation seen in recent months. Beyond the headline unemployment rate, the change in employment in December will be particularly important. The anticipated rise in inflation the following day (Wednesday, January 21) should support the Monetary Policy Committee’s cautious approach to further easing—and if confirmed, could provide some support for the pound.
Source: ceo.com.pl
