On Tuesday, gold prices jumped to a two-week high. Investors fled to a risk-off posture as they responded to the barrage of renewed tariff threats by former President Donald Trump. The precious metal, long seen as a safe-haven asset during times of chaos and uncertainty, was trading around $3,380. This is emblematic of a larger trend across financial markets, where safe-haven assets often flourish.
The foreign exchange market was similarly cautious. The US Dollar (USD) found a floor at previously mentioned 106.5 as the USD sharply bottomed following a volatile late American session Monday through early Tuesday. At the same time, the biggest currency pairs against the USD, with EUR/USD and GBP/USD, saw downward pressure, indicating a reversal on trader sentiment.
Safe-Haven Assets Shine
In a “risk-off” market environment, investors flee to safety. Generally, they tend to run to safe-haven assets including gold, government bonds and stable currencies like the US Dollar, Japanese Yen (JPY) and Swiss Franc (CHF). On Tuesday, gold’s move was especially impressive, with prices climbing further as global uncertainty continued to grow.
The US stock index futures were down by around 0.3% in the European morning trade. This decrease reflects a risk-averse mindset from investors. The USD Index was flat at 98.40. Analysts concluded that the relative stability of the USD was what made the difference in this case. This significance is compounded by its role as a preeminent reserve currency.
“I have determined that there is sufficient cause to remove you from your position.” – Donald Trump
The economic landscape would have been further complicated by Trump’s disastrous moves in recent weeks to abandon the norm of Fed independence. This can be done by quickly reinstating Lisa Cook for her position as Fed Governor. Trump ultimately defended the decision, arguing that he had sufficient justification to make the call. Cook countered this assertion, stating:
“President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so.”
Currency Movements Reflect Caution
Against that backdrop of continuing risk aversion, major currencies had mixed performances. The EUR/USD cross fell back by more than 0.8% on Monday, undoing the majority of the move it had gained on Friday. In a similar tune, GBP/USD was in a bearish move, falling around -0.5% in daily price action.
Safe-haven currencies like the JPY and CHF held firm. The USD/JPY currency pair advanced over 0.5% on Monday, as the market anticipated a surge in demand for Japanese government bonds. In addition to Switzerland’s very strict banking laws, which made the CHF attractive as investors were looking for improved capital protection.
Even this improvement might not be enough. AUD/USD found little traction on Tuesday and remains hobbled below 0.6500. As the year progressed, the Australian Dollar’s outperformance became a story of deeper challenges in the commodity-linked currency complex amid a shifting, risk-averse market environment.
Market Reactions to Tariff Renewals
Trump’s recently escalated threats at new tariffs have been a huge part of the market’s skittishness. His remarks have raised alarms of a new, possible trade war that might derail efforts by the global economic community to revive the world economy.
Katsunobu Kato noted that the volatility in foreign exchange markets has alarmed traders and analysts alike:
“alarmed over FX moves, including those driven by speculators.”
The response to these changes highlights clearly how connected political action and market activity truly are. Investors are treading lightly into these uncharted waters. From their perspective, they need to be very attuned to how changes in U.S. policy might affect markets worldwide.