The euro edged up as a softer dollar followed President Trump’s threat of tariffs linked to the Greenland dispute, reviving political risk just as European assets had been attracting fresh inflows. European leaders condemned the move, the EU froze approval of a July trade deal, and lawmakers are weighing retaliatory tools, warning of a serious rupture in transatlantic ties. While markets see uncertainty over whether the tariffs will be implemented, analysts note even a 10% levy could shave about 0.1%–0.2% off euro-area GDP, with Germany most exposed, and keep attention on Europe’s political response and today’s ZEW sentiment data.

The yen has edged slightly stronger but remains under pressure, with USDJPY still holding near multi-month highs as rising long-term JGB yields, fiscal easing concerns under PM Takaichi, and the Feb. 8 snap election keep investors cautious. Markets are positioning for a continued “sell-yen” macro mix of looser fiscal policy offsetting any BOJ tightening, though heavy speculative shorts leave the currency vulnerable to sharp squeezes on any BOJ hawkish surprise, intervention risk, or global risk-off move.

AUD has regained momentum and is one of the best-performing G10 currencies versus the dollar. Strong December inflation data points to sticky Q4 CPI, keeping the RBA firmly in “hold or hike” mode, with markets pricing around 40bp of tightening this year — the most hawkish path in G10. With inflation likely to stay above target well into 2026 and some major banks forecasting a hike as early as February, Australia stands out as a rare tightening outlier, reinforcing the bullish AUD narrative even as speculative shorts are gradually being unwound.