Investors poured into safe havens such as the dollar, yen and Swiss franc on Monday as the market rout from U.S. President Donald Trump's sweeping tariffs deepened and fears of a global recession grew.
Global markets were sent into a tailspin on Monday as Asian stocks and Wall Street futures plunged and investors wagered that the mounting risk of a deep economic downturn could lead to a cut in U.S. interest rates as early as May.
The risk-sensitive Australian and New Zealand dollars, as well as the Swedish and Norwegian crowns, all dropped against the dollar.
But the dollar in turn fell against safe-haven currencies, down 0.41% against the yen to 146.255, after tumbling more than 1.4% earlier in the session, as it extended its 2% slide against the Japanese currency from last week.
"The big theme has been selling USD/JPY because it's a good U.S. recession proxy and it's a good U.S. yields proxy and U.S. yields tanked," said Brent Donnelly, president of market maker and analytics firm Spectra Markets.
The dollar also hit its lowest in six months on the Swiss franc and was last down 0.7% at 0.8545.
Both the yen and the franc have emerged as significant winners in the aftermath of Trump's latest tariff salvo as investors dump riskier assets and flock to safe havens in a move that has also seen gold and government bonds catch a bid.
The euro , which gained as much as 0.7% to $1.1050 earlier in the session, struggled for direction in European afternoon trading. It was largely flat at $1.096375.
"The euro has certainly performed really quite well over the last couple of days since we've heard about the tariffs," said Jane Foley, head of FX strategy at Rabobank.
"Maybe that's related to the euro zone current account position, or maybe it's just related to investors still moving out of U.S. assets and still not quite sure where they should be moving their money to."
While the dollar is also typically known to be a safe haven asset, that status seems to be eroding as uncertainty over tariffs and concern over their impact on U.S. growth intensify.
However, many market analysts expect traders to return to the dollar as global uncertainties grow.
European Union countries will seek to present a united front in the coming days against Trump's tariffs, likely approving a first set of targeted countermeasures on up to $28 billion of U.S. imports ranging from dental floss to diamonds.
Sterling hit a one-month low at $1.28125 and was last down 0.7% against the greenback.
Meanwhile, the Aussie , often used as a proxy for risk appetite, tumbled to a five-year low earlier in the session, but was last flat at $0.60460.
The New Zealand dollar eased 0.14% to $0.5588, having slid more than 1% earlier in the session.
Trump's tariff announcements wiped out nearly $6 trillion in value from U.S. stocks last week. When asked about the impact, Trump said on Sunday that sometimes "medicine" was needed to fix things, adding that he was not intentionally engineering a market selloff.
TRADERS HOPE FOR RAPID US RATE CUTS
More than 50 nations have approached the White House to begin trade talks. China, which has struck back with a slew of countermeasures including extra levies of 34% on all U.S. goods, said on Saturday "the market has spoken".
Traders have ramped up bets of more Federal Reserve rate cuts this year on the view policymakers would have to ease more aggressively to shore up growth in the world's largest economy.
Markets swung to imply an approximately 55% chance of a Fed cut in May, and futures now point to more than 100 basis points worth of rate cuts by December this year . Investors were previously expecting the Fed to keep rates on hold next month.
Fed Chair Jerome Powell cautioned on Friday it was still too soon to know what the right response from the central bank ought to be.
