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SINGAPORE – The global financial markets are in turmoil following the announcement of President Donald Trump’s sweeping new tariffs, with the euro and safe-haven currencies like the yen and Swiss franc seeing significant gains.
In the wake of Trump’s tariff measures, which have deepened fears of a global economic downturn, the euro surged to six-month highs, rising 0.5% to $1.1018. Meanwhile, the yen and Swiss franc strengthened as investors shifted away from riskier assets and flocked to traditional safe havens.
Asian stocks and U.S. futures saw sharp declines, and the dollar fell by 0.75% against the yen, extending a two-week decline. This market shift signals a growing expectation that U.S. interest rates could be cut as soon as May, potentially driving further weakness in the dollar.
Brent Donnelly, president of Spectra Markets, explained that the sell-off in USD/JPY is largely due to investors viewing it as a reliable proxy for U.S. recession risks, particularly in light of declining U.S. Treasury yields.
“The big theme has been selling USD/JPY because it’s a good U.S. recession proxy and it’s a good U.S. yields proxy and U.S. yields tanked,” Donnelly said.
While the dollar is traditionally considered a safe-haven asset, its status seems increasingly uncertain as concerns about the long-term effects of the tariffs mount. The rising tensions have triggered investor uncertainty about the impact of these tariffs on U.S. growth prospects.
Eurozone Responds to Trump’s Tariffs
The euro’s strong performance is partly attributed to the European Union’s current account surplus, which has helped buffer the currency amid global economic turbulence. Jane Foley, head of FX strategy at Rabobank, noted that the euro’s recent strength could be related to investors moving out of U.S. assets and into European ones, as the U.S. grapples with trade tensions.
The European Union is also gearing up for retaliation. Officials are expected to approve countermeasures targeting up to $28 billion of U.S. imports, ranging from dental floss to diamonds, in response to Trump’s tariffs.
Other Safe Havens and Risk Assets
The yen and Swiss franc were the other big winners, with the dollar hitting its lowest level against the Swiss currency in six months, down 1.15% at 0.8505 CHF.
On the flip side, risk-sensitive currencies such as the Australian and New Zealand dollars saw steep declines, reflecting growing fears of an economic slowdown. The Aussie hit a five-year low, while the New Zealand dollar also softened.
For many market participants, Trump’s tariffs serve as a clear signal of rising economic risks, and traders are adjusting their strategies accordingly.
Impact on U.S. Stocks and Global Trade
Trump’s tariff measures have already wiped out nearly $6 trillion in value from U.S. stocks, and the administration has been under pressure to address the economic fallout. Despite this, Trump has indicated that such economic “medicine” is necessary to fix underlying issues, adding that the market selloff was not intentional.
In the aftermath of the tariffs, more than 50 countries, including China, have initiated trade talks with the White House. China, which has imposed retaliatory tariffs of up to 34% on U.S. goods, signaled that the market had already reacted to the uncertainty created by these actions.
Fed Rate Cut Expectations Grow
As the economic uncertainty deepens, traders are increasingly betting on aggressive Federal Reserve rate cuts to support growth. The chances of a rate cut by the Fed in May have now climbed to approximately 55%, with futures markets pointing to a total of over 100 basis points worth of rate cuts by December 2025.
Federal Reserve Chair Jerome Powell cautioned that it was still too early to determine the appropriate policy response, but investors are anticipating a more dovish stance from the central bank to counter the economic impact of the tariffs.
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