Through this week, the capital markets have been rocked by historic changes. US Dollar, Low Tension boiled over into the US-China trade war. The US Dollar Index fell back down toward multi-month lows around the 101 level. This is an unmistakable sign of a weakening dollar’s strength, or hegemony against other currencies. The recent dip has already triggered major movements in the currency market. Of particular significance, the EUR/USD currency pair surged to its highest bids in nearly two years.
The EUR/USD pair on Thursday broke and settled above the 1.1200 mark for the first time in 21 months. This stellar performance is a result of dawning realization and confidence that the Euro is indeed building on recent strength. Analysts point to the upward trend driven by three main factors. The weakening US Dollar and improving economic fundamentals in the Eurozone are major factors pushing this trend.
The Australian Dollar proved its mettle during this shakeup. On Thursday, it kept on going, moving up toward the 0.6240 area. It’s a measure of how well the Australian economy is doing – and how strong our economy still is. It still finds investors seeking an alternative to the US Dollar.
The backdrop for all of these events is the continuing trade war between the United States and China. Over the past year, the conflict has escalated sharply. The Trump administration’s late-in-the-game move to turn on its own tariffs helped facilitate the softest US Dollar flows on record. This shift contributed to the currency’s decline, as market participants reacted to changing trade dynamics and potential impacts on economic growth.
Gold prices spiked up to just under an all-time high of $3,190 during the early Asian session on Friday. This spike happened as we saw some pretty incredible currency appreciation. The rising demand for gold reflects investor concerns over market stability, driven by both the weakening US Dollar and rising tensions from the trade war. Like most safe-haven assets, gold is typically in higher demand when economic uncertainty rises.
The interaction among these elements has set the stage for an intricate investor landscape. Fueled by trade war anxieties and a changing political environment, this downturn has driven thousands to find shelter in new assets such as gold. The rising Euro and Australian Dollar show that there is some currency strength out there, even in the face of larger worrying economic trends.