In the week ahead: U.S. Core PCE Index & GDP, BOJ Rate Decision

The EUR/USD pair extended its recovery early on Monday, rising above the 1.1630 level. The move comes as the US Dollar weakens amid renewed trade tensions between the United States and Europe following fresh tariff threats from President Donald Trump.

Over the weekend, Trump announced plans to impose a 10% tariff on imports from several European countries starting February 1, with duties set to rise to 25% in June unless an agreement is reached over the proposed acquisition of Greenland. The affected nations include Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and the United Kingdom.

European leaders are expected to push back against the measures, with reports indicating that emergency talks will be held in the coming days to discuss potential retaliation. The prospect of an escalating trade dispute has weighed on the US Dollar, as investors factor in higher political risk premia, providing support to the Euro.

Adding to subdued trading conditions, US financial markets are closed on Monday in observance of Martin Luther King Jr. Day.

Strong US labor market data released last week has reinforced expectations that the Federal Reserve will keep interest rates unchanged at its January meeting, amid resilient employment conditions and persistent inflation. According to the CME FedWatch Tool, markets are assigning nearly a 95% probability that the Fed will hold rates steady at the January 27–28 policy meeting.

Gold prices remain firm near record levels early on Monday, extending intraday gains into the European session as rising geopolitical tensions and renewed trade-war concerns drive investors toward safe-haven assets. The yellow metal continues to draw support from a weaker US Dollar and heightened global uncertainty following fresh tariff threats from US President Donald Trump.

Trump announced new tariffs of 10% on imports from eight European countries starting February 1, rising to 25% in June if no agreement is reached over Greenland, drawing sharp criticism from Europe and reviving trade-war fears that have boosted demand for gold.

Safe-haven flows have also been reinforced by escalating geopolitical risks beyond trade. Tensions in the Middle East remain elevated after Iran warned that any attack on Supreme Leader Ayatollah Ali Khamenei could trigger a full-scale conflict, while the ongoing Russia–Ukraine war continues to unsettle markets. Ukrainian officials have warned of potential Russian strikes near critical nuclear infrastructure, underscoring the fragile security backdrop.

At the same time, the US Dollar has retreated from its highest level since early December, weighed down by a crisis of confidence in US assets amid political and trade uncertainty. The softer greenback has provided additional support to gold prices.

Looking ahead, market participants will focus on key US data releases later this week, including the Personal Consumption Expenditure (PCE) Price Index and the final reading of third-quarter GDP.

Oil prices were steady in Asian trading on Monday after last week’s volatility, as easing concerns over Iran-related supply disruptions gave way to renewed focus on US trade tensions with Europe.

Crude prices had risen earlier last week on fears that unrest in Iran could threaten Middle Eastern supply, but those gains faded after President Trump ruled out any immediate US military action, allowing prices to stabilize.

Attention has since shifted to Trump’s threat to impose tariffs on eight European countries opposing the proposed US acquisition of Greenland. The plan includes a 10% tariff starting February 1, rising to 25% in June if no agreement is reached, raising the risk of a wider transatlantic trade dispute. European officials are reportedly considering retaliatory measures, adding to market uncertainty.

Traders are also watching broader macroeconomic signals, including expectations of US interest rate cuts later this year, which could support oil demand by improving financial conditions. Meanwhile, lingering geopolitical and trade uncertainties are likely to keep oil prices range-bound in the near term as markets await clearer policy signals.

US equities ended slightly lower on Friday, as strong corporate earnings and upbeat economic data were overshadowed by renewed tariff concerns and uncertainty surrounding future Federal Reserve leadership.

Market sentiment was weighed down after President Donald Trump warned that he could impose new tariffs on countries opposing US plans to acquire Greenland, citing national security concerns. The comments revived fears of additional trade barriers at a time when investors had grown more comfortable with the idea that tariff levels would remain broadly stable. Adding to the uncertainty, Trump indicated a preference for keeping National Economic Council Director Kevin Hassett in his current role rather than nominating him as the next Fed chair, surprising markets that had viewed Hassett as a likely, market-friendly candidate.

Earnings remained a key focus, with mixed results from major US banks highlighting volatile trading conditions toward the end of the year.  Investors are now turning their attention to the broader earnings calendar, with several major companies set to report in the coming days, including Netflix, 3M, U.S. Bancorp, Johnson & Johnson, Visa, Intel, and Abbott Laboratories. The technology sector has also drawn support after TSMC reported record fourth-quarter profits, underscoring strong demand driven by artificial intelligence.

On the macroeconomic front, stronger-than-expected industrial and manufacturing data, alongside a drop in weekly jobless claims, reinforced the view that the US economy remains resilient. These data points, along with comments from several Federal Reserve officials, have pushed expectations for the first interest rate cut toward mid-year, as policymakers signal a preference to keep rates steady while inflation remains elevated.