Market Analysis

Dollar Weakens, Investors Flock to Yen and Swiss Franc Amid Trade War Fears

Amos Simanungkalit · 08 Apr156.1K Views

Image Credit: Forbes

The Japanese yen and Swiss franc held near six-month highs on Tuesday, while the U.S. dollar continued to suffer broad losses as markets grappled with increasing recession fears following President Donald Trump's new tariffs.

Currency markets remained fragile yet oddly calm in early Asian trading after a volatile 24-hour period where the dollar initially reversed heavy losses against safe-haven currencies, as traders assessed the escalating risk of a trade war. Global stocks have fallen sharply since Trump announced the tariffs, with China and the European Union quickly retaliating with proposed higher tariffs of their own. Trump has threatened to impose even greater tariffs in response.

In the past week, investors have flocked to the yen and Swiss franc, traditional safe havens, amid the market turmoil. The yen was slightly stronger at 147.61 per dollar, close to the six-month high of 144.82 reached on Friday. The Swiss franc was trading at 0.858 per U.S. dollar, also near a six-month high.

Although the dollar is typically considered a safe-haven asset, its status appears to be diminishing due to growing uncertainty surrounding tariffs and concerns over their potential impact on U.S. growth. The euro rose 0.38% to $1.0944, not far from the six-month high it reached last week, while the British pound gained 0.3%, reaching $1.2765, moving away from the one-month low hit in the previous session.

Nathan Lim, chief investment officer at Lonsec Investment Solutions, noted that the current market volatility is largely due to U.S. policy decisions, and if those decisions were reversed, the market impact would likely reverse as well. Investors are betting that the increasing risk of an economic slowdown could lead to a U.S. interest rate cut as early as May, with further cuts expected this year, eroding the dollar's yield advantage.

The dollar index, which measures the U.S. currency against six others, was 0.3% lower on Tuesday and has fallen 1% since the tariffs were announced last week. Federal Reserve Bank of Chicago President Austan Goolsbee commented on Monday that while businesses are concerned about the tariffs, the Fed would need to look at "hard data" before adjusting policy.

Kevin Gordon, senior investment strategist at Charles Schwab, emphasized that the Fed is constrained by persistent inflation and questioned the effectiveness of aggressive rate cuts in addressing the current situation.

Meanwhile, the risk-sensitive Australian and New Zealand dollars have dropped against the U.S. dollar in the past week. The Australian dollar remained near a five-year low at $0.59845, while the New Zealand dollar was 0.2% lower at $0.5539.