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Investors bought into safe havens such as the dollar, yen and Swiss franc yesterday as concerns about a global recession heightened following US President Donald Trump’s sweeping tariffs on trading partners.
Global markets plunged yesterday, with Wall Street stocks trading lower after Asian shares sank, as investors wagered the mounting risk of a deep economic downturn could lead to a cut in US interest rates as early as May.
The risk-sensitive Australian and New Zealand dollars, as well as the Swedish and Norwegian crowns, all dropped against the dollar.
The dollar cut its losses against other safe-haven currencies. It was up 0.50 per cent against the yen to 147.605, after tumbling more than 1.4pc earlier in the session.
The dollar also hit its lowest in six months against the Swiss franc and was last down 0.06pc at 0.8605 franc in choppy trading.
“The only thing we know for sure is that it’s volatile ... But I think broadly, leaving aside nuances, because tariffs are thought to be hurting world growth, those currencies that seem to be more like risk-on currencies – the dollar bloc and the Scandies – they are underperforming,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“On the other hand, the currencies that are typically safe-haven currencies – like the Swiss franc and yen – are performing better.”
The euro, which gained as much as 0.7pc to $1.1050 earlier in the session, was down 0.39pc at $1.091775.
“The euro has certainly performed really quite well over the last couple of days since we’ve heard about the tariffs,” said Jane Foley, head of FX strategy at Rabobank.
“Maybe that’s related to the euro zone current account position, or maybe it’s just related to investors still moving out of US assets and still not quite sure where they should be moving their money to.”
While the dollar is typically known as a safe-haven asset, that status seems to be eroding as uncertainty over tariffs and concern over their impact on US growth intensify.
Sterling hit a one-month low at $1.27465 and was last down 1.05pc against the greenback.
The Aussie, often used as a proxy for risk appetite, tumbled to a five-year low earlier in the session, but was last down 0.51pc to $0.601.
The New Zealand dollar eased 0.86pc to $0.5547, having slid more than 1pc earlier in the session.
Trump’s tariff announcements wiped out nearly $6 trillion in value from US stocks last week. When asked about the impact, Trump said on Sunday that sometimes “medicine” was needed to fix things, adding he was not intentionally engineering a market sell-off.
More than 50 nations have approached the White House to begin trade talks. China, which has struck back with countermeasures including extra levies of 34pc on all US goods, said on Saturday “the market has spoken.”
Traders have ramped up bets of more Federal Reserve rate cuts this year on the view policymakers would have to ease more aggressively to shore up growth in the world’s largest economy.
Markets swung to imply an approximately 55pc chance of a Fed cut in May, and futures now point to more than 100 basis points worth of rate cuts by December this year. Investors were previously expecting the Fed to keep rates on hold next month.
Fed Chair Jerome Powell cautioned on Friday it was still too soon to know what the right response from the central bank ought to be.
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