On Thursday evening after the close, foreign exchange and commodities markets experienced extraordinary movements. So it’s not surprising that the euro and gold prices both shot up to record levels. What happened The EUR/USD currency pair erupted to its tallest bids in nearly two years. It closed above the 1.1200 handle for the first time in 21 months. The US Dollar Index fell once more, nearing multi-month lows around the 101 level. This sharp drop is representative of a larger, troubling trend—an overall cooling of dollar flows.
Gold prices skyrocketed to an incredible $3,176. This astonishing leap is actually a 3% increase from the day before. Analysts now confirm that the increasing price of gold is directly related to the falling US dollar. Interestingly, they highlight continued tensions in the US-China trade relationship as a driver, too. The Trump administration’s last-minute pivot away from its tariffs has contributed to this dynamic, resulting in a softening of US dollar flows.
The US-China trade war is heating up. Economists today decry it as a full-blown economic divorce, and they find few winners coming out of the contentious split. There are signs that tensions have started to ease, but the effects on financial markets continue to be dramatic. Combined with the US dollar’s continued weakening – thanks in part to the ongoing, self-inflicted trade war – precious metals, especially gold, are getting a steroids-like boost.
No currency moved more violently than the Swiss franc, rocketing upward by 4%. This increase constitutes one of the biggest increases in history for any of the world’s free-floating currencies. The euro jumped to its largest one-day increase since 2015 eclipsing the $1.1240 threshold. Simultaneously, the Bund market in the eurozone was performing extraordinarily well, indicating a flight of capital away from U.S. assets toward European securities.
The other Australian dollar resumed its recent bullishness, gaining ground to approach the 0.6240 area.… foreign exchange markets are active and optimistic. In stark contrast, Asian stock futures – particularly in Japan are hitting the skids. Japanese stock futures at one point were down almost 4% at Friday’s open. This drop is a bitter wake-up call following an incredible 9% surge on Thursday.
The surprise outcomes are just that—a surprise because market participants are on high alert watching how this change in geopolitical dynamics will impact economic fundamentals.
“The red flag moment is when US yields spike while the Bunds rally. That’s when you know something’s broken and capital is bailing stateside.” – SPI Asset Management
The Federal Reserve’s new dovish communication stance is a frustrating wrinkle to these market shifts. As global investors react to these uncertainties, the need for safe-haven assets has never been greater.