Investors are shifting into safe-haven assets amid deepening market turmoil sparked by sweeping U.S. tariffs and growing fears of a global economic downturn.
The Japanese yen and Swiss franc have both surged against the dollar, while bond yields have fallen as traders price in aggressive Federal Reserve rate cuts.
The USD/JPY pair fell around 3% in last few days, while the USD/CHF has similarly moved lower to hit a six-month high.
“The franc is another obvious candidate” as a hedge in volatile times, said Citi’s Ebrahim Rahbari.
The flight to safety intensified Sunday evening after U.S. president Donald Trump reaffirmed his commitment to tariffs despite recent market losses.
“I don’t want anything to go down, but sometimes you have to take medicine to fix something,” Trump said aboard Air Force One, responding to questions about the sell-off.
Trump again pointed to the trade imbalance with China as justification. “We have a trillion-dollar trade deficit with China… unless we solve that problem, I’m not going to make a deal,” he said. “I’m willing to deal with China, but they have to solve their surplus.”
Stock futures fell following Trump’s remarks, with Dow Jones Industrial Average futures down 4.1%, extending last week’s rout. The S&P 500 lost more than 10% last week, while the CBOE Volatility Index (VIX) — the most well-known measure of market sentiment — surged above 60 intraday, which its highest level since August last year.
The VIX opened Monday with a sharp spike, as there were no indications that U.S. president Donald Trump would soften his stance on tariffs. The volatility index briefly climbed above 60 during what appeared to be thin premarket trading in S&P 500 options before moving to trade in the 53-55 range.
The VIX futures curve has turned sharply inverted, signaling intense near-term market stress and a surge in demand for short-term hedging. The spread between the front-month and eight-month contracts has widened to levels not seen since the height of the COVID-19 crisis in 2020, according to Bloomberg data.
Markets are now fully pricing in five Fed rate cuts through 2025 as investors brace for a deeper economic shock. Treasury yields have dropped sharply, with demand rising on expectations of slowing growth.
Billionaire hedge fund manager Bill Ackman warned that the tariff-driven market dislocation could have lasting effects.
“America is heading toward a self-inflicted economic nuclear winter,” said the Pershing Square CEO. “Business is a confidence game. The president is losing the confidence of business leaders around the globe.”
