Jan 19, 2026
- Trump's Greenland move is rippling through markets and testing confidence in US assets.
- Europe's vast US holdings highlight how dependent America is on foreign capital.
- Political risk is rising, raising fears of reduced demand for the dollar and Treasurys.
President Donald Trump's push to acquire Greenland is spilling into markets, drawing attention to Europe's leverage in US capital markets.
On Tuesday, Treasurys sold off. Yields climbed to their highest level in more than four months as "Sell America" fears gripped markets amid the latest geopolitical tensions. The US Dollar Index also moved lower.
"Europe owns Greenland, it also owns a lot of Treasuries," wrote George Saravelos, Deutsche Bank's global head of currency research, in a note on Sunday.
That exposure highlights a key vulnerability for the US, which depends heavily on foreign investors to finance its debt.
European countries own around $8 trillion of US bonds and equities — almost twice as much as the rest of the world combined, according to Deutsche.
"For all its military and economic strength, the US has one key weakness: it relies on others to pay its bills via large external deficits," Saravelos added.
He pointed out that Danish pension funds were among the first to repatriate capital and cut dollar exposure last year in response to uncertainty over Trump's policies. Saravelos also warned that dollar exposure across Europe remains elevated.
"In an environment where the geoeconomic stability of the western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part," Saravelos said.
Beyond currencies, Saravelos said the real risk lies in capital markets as the US is more vulnerable to foreign investors than ever before.
"It is a weaponization of capital rather than trade flows that would by far be the most disruptive to markets," he wrote.
That risk is already starting to be priced in, according to Chris Weston, head of research at Pepperstone.
"The market dynamic we are seeing increasing evidence of is that US assets (including the USD) are now carrying a much higher political risk premium," Weston wrote on Monday.
That shift could push foreign investors to reduce their US exposure and adjust how much dollar risk they hold, weighing on the currency and boosting haven assets like gold, he added.
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