What an amazing day in the financial markets. The US Dollar Index (DXY) traded down to a new one-month low of 98.70, -0.3% on the day and nearly -3% from those early May highs. This depreciation coincided with an explosion of “risk-on” sentiment. This interesting change of tune came after President Donald Trump announced that he would halt a proposed 50% tariff on EU products. Consequently, there was an increased flight to safety and demand for currencies acting as safe-haven, such as USD. The Japanese Yen and Swiss Franc were the clear winners in these “risk-off” periods.
Investors remain on edge as they await the flood of upcoming economic indicators. These are the transcripts from the most recent Federal Reserve meeting, as well as the initial reading of Personal Consumption Expenditures (PCE) Price Index. These dramatic changes will provide a clearer window into the US Dollar’s trajectory going forward. Monday is likely to be a thin trading environment for traders to navigate as UK and US markets will be closed.
Impact of “Risk-On” Sentiment
Trump’s recent announcement to delay tariffs is a sign of a new strategic focus, one that has brought back a degree of confidence among investors. According to market analysts, “In a ‘risk-on’ market, investors are optimistic about the future and more willing to buy risky assets.” This shift adds to a renewed appetite for higher-yield investments, despite safe-haven currencies staying in demand.
After anxiety over US-EU reciprocal tariffs, positive sentiment has developed. These tariffs would do massive damage to American and global economic growth. Together, the US and EU account for 30% of global GDP. This alone makes all tariff-related tension a key concern for traders and investors.
Markets responded immediately to the announcement. The GBP/USD consolidated its gains and moved to three-year highs, approaching 1.3600, as the DXY continued to fall. The volatility across these currency pairs is a sharp reminder of just how connected global economic policy is to market performance.
Safe-Haven Currencies Shine
In times of increased global turmoil, safe-haven currencies tend to appreciate. The Japanese Yen and Swiss Franc are perfect cases, as they are viewed as safe havens. The Yen, especially, historically appreciates as demand for Japanese government bonds spike in “risk-off” episodes.
Market analysts observe that “bonds, especially major government bonds, tend to go up in value” when investors seek safety. The Swiss Franc continues to profit from the current climate, as a safe-haven store of value during such global turbulence.
Gold has returned to become the asset of choice in the current market. It’s a pattern evidenced by commodities such as gold, which tend to perform well when investors seek less risky investment strategies. The precious metal’s attraction today though is based out of its historical reputation as a safe haven from collapsing economies.
Future Outlook for the US Dollar
Traders are highly anticipating further economic data. Specifically, they are keen on understanding the implications of these indicators to the future performance of the US Dollar. The market is looking forward to the next reading of the PCE Price Index with great curiosity. This data is important for assessing inflationary pressures that may affect Federal Reserve policy.
Especially given how close to home the DXY’s recent 104.63 is, multi-year low of 97.95 reached late April. Analysts suggest that if the index continues to decline, it may signal deeper concerns regarding economic stability and growth prospects.
“Donald Trump announced a pause on the 50% tariffs plan from June 1st after a phone call with EU Commission president Von der Leyen in which both leaders agreed to give some time to reach a good deal.” – source