Europe is facing fresh tensions with the Trump administration after Trump announced a 10% tariff from Feb. 1 on countries backing Greenland against US pressure, with a threat to raise it to 25% unless a deal is reached to purchase the territory. Rather than weakening the euro, the news has helped spark a rebound, as markets see the dispute as a potential catalyst for stronger European political unity. One European bank warns the standoff could strain the Western alliance, while France is pushing for a coordinated EU response. Meanwhile, investors are watching key eurozone data this week, including Germany’s ZEW survey and January PMI readings.

The pair has dipped on profit taking and heightened sensitivity to intervention rhetoric, with both Japanese officials and US Treasury Secretary Bessent stepping up verbal warnings. The BoJ is expected to hold rates at 0.75% this week, with markets watching for any hints on the timing of the next hike, still seen only in the second half of the year, even as yen weakness is increasingly viewed as a trigger for earlier tightening rather than a reason to delay. For now, 160.00 remains a key near-term line in the sand, with political and fiscal risks offsetting any support from potential BoJ hawkish signals, while upcoming bond operations, auctions and inflation data will be closely watched.

The Australian dollar is the top-performing G10 currency versus the US dollar so far this year, supported by strong domestic data, resilient household spending, and a hawkish RBA that is seen more likely to hike than cut rates. While weaker Chinese demand is a near-term headwind, expected stimulus, a firmer yuan, and strong Chinese trade flows could offset the drag. Markets still price around 40bps of RBA hikes this year, and with US dollar weakness expected over 2026, AUD upside remains intact — though near-term moves will stay highly data-dependent.