The euro rose in European markets on Monday at the start of the week against a basket of global currencies, beginning to recover from a two-month low hit earlier in Asian trading against the US dollar. The move was supported by negative pressure on the US currency after President Donald Trump threatened to impose tariffs on Europe as part of efforts to take control of Greenland.

With inflationary pressures on policymakers at the European Central Bank easing, expectations for at least one European interest rate cut this year have strengthened. To reprice these expectations, markets are awaiting further economic data from the euro area.

Price Overview

Euro exchange rate today: The euro rose by about 0.4% against the dollar to $1.1638, from Fridays closing level of $1.1595, after touching a low of $1.1576 the lowest since November 28.

The euro ended Fridays trading down 0.1% against the dollar, marking a second consecutive daily loss, following the release of strong US economic data.

Last week, the euro lost 0.35% against the dollar, recording a third straight weekly loss, amid rising expectations for European interest rate cuts this year.

The US dollar

The dollar index fell by 0.3% on Monday, moving away from a six-week high and reflecting broad weakness in the US currency against a basket of major and secondary currencies.

Beyond profit-taking, the dollar has come under pressure due to investor concerns following threats by US President Donald Trump to impose additional tariffs on Europe.

Over the weekend, Trump said he would impose an additional 10% tariff on imports starting February 1 on goods coming from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and Britain, until the United States is allowed to purchase Greenland.

Major European Union countries on Sunday condemned the tariff threats over Greenland, describing them as blackmail. France proposed responding with a set of economic countermeasures that have not previously been used.

European interest rates

Recent data from Europe showed a slowdown in headline inflation in December, underscoring easing inflationary pressures on the European Central Bank.

Following those data, money-market pricing for the probability of the ECB cutting European interest rates by about 25 basis points in February rose from 10% to 25%.

Traders revised their expectations from the ECB keeping interest rates unchanged throughout the year to at least one 25-basis-point rate cut.

To reprice these expectations, investors are awaiting further euro-area economic data on inflation, unemployment, and wages.

Views and analysis

Khoon Goh, Head of Asia Research at ANZ, said that tariff threats would normally be expected to weaken the euro. However, as seen last year as well, when Liberation Day tariffs were imposed, the impact in foreign exchange markets tended to skew more toward dollar weakness as uncertainty around US policy increased.

Goh added that while some may argue tariffs threaten Europe, the US dollar is bearing the greater burden, as markets are pricing in a higher political risk premium associated with the US currency.