U.S. Dollar under pressure as trade war Intensifies
The U.S. dollar, typically regarded as a safe-haven currency during periods of global uncertainty, has come under significant pressure. Investor confidence in the greenback has been dented by President Donald Trump’s decision to impose a 104% tariff on Chinese imports, contributing to a depreciation of more than 5% so far this year. Adding to concerns, long-dated U.S. Treasury yields have surged by over 40 basis points in the space of a week, reflecting broader unease about the reliability of U.S. assets in the current climate.
Tensions between the United States and China have intensified sharply, with both countries ramping up tariffs and retaliatory measures. The resulting uncertainty has fuelled volatility across global markets. Asian equities saw a brief rally following President Trump’s announcement of a 90-day pause in the trade war for most trading partners—retaining a general 10% reciprocal tariff while increasing levies on Chinese imports to 125%. The market interpreted this pause as less aggressive than initially feared, offering a momentary boost in sentiment.
However, the situation soon escalated again. President Trump signed an executive order tripling tariffs on low-value parcels (under $800) arriving from China and Hong Kong. The revised tariff structure raises the cost to 90% of a parcel’s value or a fixed $75 per item, replacing the previous thresholds of 30% or $25. These measures are scheduled to take effect on 2 May 2025 and are expected to hit a broad range of consumer goods.
Safe-haven assets in demand as market turmoil deepens
These developments point to a broader shift in investor sentiment, with traditional safe-haven assets such as the yen, franc, gold, and increasingly the euro, gaining favour. Meanwhile, confidence in the U.S. dollar has waned amidst intensifying trade tensions and unpredictable fiscal policy in Washington.
Japanese Yen (JPY):
The Japanese yen has gained in value as investors turn to safer assets amidst heightened market volatility. This comes despite Japan being subject to a 24% reciprocal tariff from the United States. The yen’s reputation as a reliable safe haven has underpinned its recent strength, with USD/JPY trading around the 146.69 mark.
Swiss Franc (CHF):
The Swiss franc has similarly attracted increased demand. The USD/CHF pair is expected to continue its decline towards the 0.8500 level, reflecting growing investor confidence in the franc as a stable refuge amid uncertainty.
Gold:
Gold prices have soared to record highs, surpassing $3,000 per ounce. The surge has been driven by consistent safe-haven inflows, as market participants look to shield themselves from ongoing currency and equity market instability.
Euro (EUR):
Notably, the euro has begun to act as a secondary safe-haven currency. Despite ongoing economic concerns within the Eurozone, the single currency has benefited from capital outflows away from the United States and other higher-risk environments. The European Central Bank’s relatively steady stance and the euro’s role in global reserve holdings have helped support its appreciation.
U.S. CPI Data Release: Key Insights into Inflation Outlook
The U.S. Bureau of Labor Statistics is set to publish the Consumer Price Index (CPI) data for March 2025 today. This release is expected to offer important insights into the current inflationary environment, with potential impacts on various financial markets. Market participants will need to pay close attention to the figures, as they could influence Federal Reserve policy decisions and broader economic trends. Forecasts indicate a modest monthly rise of 0.1%, largely due to lower energy prices. On an annual basis, this would equate to a 2.6% increase, a slight decrease from February’s 2.8%.
