Investors sought refuge in safe-haven currencies like the yen and the Swiss franc on Monday, while significantly offloading the risk-sensitive Australian dollar. This shift in sentiment was triggered as the fallout from U.S. President Donald Trump’s aggressive tariff policies deepened and concerns over a potential global recession intensified.
Stock markets across Asia, along with Wall Street futures, experienced sharp declines as investors began to speculate that the increasing risk of recession might prompt the U.S. Federal Reserve to cut interest rates as early as May. The dollar fell by 0.45% against the yen, trading at 146.21, albeit recovering slightly after a more substantial decline earlier in the session.
Brent Donnelly, president of Spectra Markets, noted that the trend of selling USD/JPY indicated the market’s view that the U.S. economy was facing recession risks and that U.S. yields had plummeted. The Swiss franc appreciated more than 0.6% to 0.8548 per dollar, building on its significant gains from the previous week.
While these currencies strengthened, the Australian dollar plunged to a five-year low, ultimately settling down 0.66% at $0.6005. The New Zealand dollar also mirrored this downward trend, falling by 0.38% to $0.5575.
Market analyst Tony Sycamore remarked that unless there was a reversal of the tariff actions, there was a looming danger of a liquidity crisis that could adversely affect all asset classes. The impact of Trump’s tariff proposals was profound, erasing nearly $6 trillion in U.S. stock market value last week.
Despite this, Trump asserted that sometimes tough measures are necessary, denying any intention behind the market selloff. More than 50 countries have since reached out to the White House for trade discussions amidst escalating tensions, with China implementing countermeasures, including increased tariffs.
As safe-haven assets such as government bonds and gold gained traction, the dollar’s reputation as a secure asset began to wane amid rising uncertainty about the tariffs and their implications for U.S. economic growth. The euro inched up to $1.0967, while Sterling eased to $1.2892.
Market sentiment shifted towards the expectation of more aggressive Fed rate cuts this year, with the likelihood of a reduction in May increasing and a forecast of over 100 basis points of cuts by the end of December. Meanwhile, the onshore yuan dropped to an over two-month low, signaling ongoing strain in China’s currency as well.