Is Greenland the Next American Target?

The macro point

Geopolitics is making waves early this year. After Venezuela, the Trump administration is closely eyeing Greenland – a territory belonging to Denmark. With the ice melting, it is becoming a strategic maritime passage for international trade. More importantly, Greenland has significant reserves of rare earths and other critical minerals that the United States absolutely needs to maintain its economic hegemony and its lead in artificial intelligence. Let's take the Kvanefjeld site, in the south of the territory. It has the 6th largest uranium reserves in the world. Obviously, this is essential for providing low-cost energy. Zinc, copper, as well as numerous rare earths and offshore oil are present. Washington is hinting at a possible military intervention. This is unlikely. We are rather betting on some form of association agreement similar to that which exists with Puerto Rico. In this framework, Greenland would have its own Constitution and wide management autonomy while foreign affairs and defense would fall under Washington. How would Europe react? Condemnations on X (formerly Twitter) by the main European political leaders are likely...It is unlikely to go further.

How could the foreign exchange market react? It's hard to say. The military intervention in Venezuela did not particularly lead to an increase in risk aversion – the dollar and the Swiss franc did not benefit from it. Quite the opposite happened since risk assets – typically stocks – rose following the capture of Nicolas Maduro. It cannot be ruled out that the currency market will remain relatively inert in the event of Greenland's attachment to the United States.

On the economic front, this early part of the year is mainly marked by the publication of positive statistics that support our scenario of sustained global growth. Inflation in the euro area remains contained. In Germany, it reached 2.0% over one year in December – which corresponds to the target of the European Central Bank (ECB). In France, it remained stable over the same period at 0.7%. The only downside at the level of developed countries, the US ISM manufacturing index in December is at a 14-month low at 47.9 (in a contraction phase). This is not particularly worrying for the overall dynamics of the US economy since the services sector is still in an expansion phase.

On the Chinese side, the government confirmed a few days ago its GDP target at 5% this year, thanks to increased support for emerging industries, artificial intelligence, and all its possible applications, particularly in robotics. Support for consumption is also still on the agenda (as announced at the December Economic Work Conference). However, the authorities are aware that this will take time to materialize. Another point to consider, Beijing has confirmed that it has begun negotiations with the European Union for the signing of a free trade agreement. The outlines are unknown. In any case, it should take several years. Risk or opportunity for European companies? It's too early to tell.

Technical point

On the foreign exchange market, the return of geopolitics to the forefront has not resulted in a return of volatility. Take the EURUSD. The pair moved within a narrow range of about 100 pips over the past week. This is the case for all major pairs. It often happens that at the beginning of the year the market lacks direction and is stagnant, waiting to learn more about the economic dynamics in play. We expect, like the consensus, a continuation of the dollar's decline. However, it should be more limited than in 2025. Last year's downturn of the Dollar Index was unprecedented since 1973. It's a market anomaly that we don't expect to recur. The weak dollar should continue to benefit the euro, with possibly an EUR/USD pair reaching 1.20 or even 1.25 in the next two quarters, before probably correcting a little. This will also benefit most emerging currencies, as was the case in 2025.

Contrary to many analysts anticipating a strengthening of the Japanese yen, we don’t think that will happen. Their idea was simple: once the Bank of Japan raises its rates, the yen would benefit. It did raise the cost of money in December. However, the yen is still lagging. As long as speculative funds are positioned to sell the Japanese currency, we do not foresee a change in trend for the EUR/JPY, which could reach new highs soon.

Announcements to follow

U.S. inflation in December is in the spotlight. Unlikely that it will generate much interest. The market is expecting two 50 basis point rate cuts in the first half of the year—which is consistent with our scenario. The slightly above-target inflation is largely the result of excess credit (M2 money supply at a historic record) and sustained demand. So it's not problematic.

The information presented in this publication is provided purely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to purchase, and should not serve in any way as a basis or be considered an incentive to engage in any type of investment.