The EURUSD snapped its recent trend over the last couple of days. The dollar strengthened last week as the odds of a near-term rate cut diminished amid better-than-expected US data. But US President Donald Trump’s latest overtures to acquire Greenland, backed by threats of tariffs, have renewed the “sell America” trade that popped up last year in the wake of the April tariff announcement.

The dollar has weakened, helping the EURUSD rise, as investors stay away from US assets amid concerns that prolonged trade uncertainty over the Greenland issue could persist. This is best illustrated by rising US Treasury yields that have not translated into gains for the dollar, implying that bond buyers are demanding a higher premium for owning US debt. However, with indices falling on both sides of the Atlantic, it’s still unclear which side will prevail, and traders are approaching the situation with caution.
 

“TACO trade” vs “Sell America” Trade

Many analysts suggest that the markets are not yet pricing in an implementation of Trump’s threatened tariffs. That is based on the hope that the situation can be sorted out in the next couple of weeks. With Trump heading to Europe to attend the WEF confab in Davos, he has the opportunity to meet with many European leaders, including those from countries threatened with tariffs.

Trump has a history of threatening tariffs to gain the upper hand in negotiations, with the levies most often not going into effect. However, if there are no substantial signs of progress on Greenland when Trump returns later this week, traders might get nervous, and the weakness in the dollar could reaccelerate. What could prevent that, or occasion a rebound in the greenback, is the upcoming release of key US inflation and economic data.
 

Delayed Data is Still Market-Moving

Thursday sees the concurrent release of the final US Q3 GDP figures and the October and November PCE price index, the Fed’s preferred inflation metric. These releases were delayed due to the government shutdown last year. But with US data released so far this month giving mixed signals, if the upcoming figures align, they could change the market’s perception and drive dollar pairs.

The US Core PCE price index for November is likely to steal the show ahead of the FOMC meeting next week. It’s expected to remain unchanged at 2.8%, well above the Fed’s 2.0% target. This could lend more credibility to expectations that the Fed will hold off on easing until June, the current market consensus. If that were the case, it could firm up the dollar.
 

It’s the Economy

At the same time, the US Q3 GDP is expected to be confirmed at an annualized 4.3% in its final reading. This was higher than anticipated, suggesting the US economy accelerated into the final quarter of the year. The Fed’s GDPNow tool indicates the US economy likely grew at an even faster rate in Q4, at 5.3% annualized.

A fast-growing economy typically puts upward pressure on inflation, so outperformance in the PCE price index, coupled with strong US GDP, could mean the Fed will be on hold for several months. This would align with the ECB, which is also expected to keep rates unchanged. In that case, the balance of interest rates would renew support for the dollar. But if the data disappoints, it could add to the geopolitically induced weakness we are already seeing, giving the EURUSD a boost.

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