Investors Seek Safe Havens Amid Trump Tariff Threats
As President Donald Trump threatened tariffs on steel and aluminum imports, investors sought refuge in safe-haven assets like the US dollar and gold. The greenback strengthened against most G-10 currencies, with the yen and Canadian dollar suffering the most. Gold prices reached a record high in anticipation of a potential 25% levy.
Concerns about inflation and the Federal Reserve's response have driven investors towards the dollar since late 2022. Recent job data indicating a slowdown in the labor market has reduced expectations of further interest rate cuts.
"The heightened risk of global trade disruption is a supportive factor for the US dollar," said Lee Hardman, MUFG FX strategist. The dollar index is trading at its highest level in nearly a week, extending Friday's gains after Trump's announcement of reciprocal tariffs.
Wall Street banks expect the dollar to continue its upward trajectory. Goldman Sachs forecasts it will reach parity against the euro, while JPMorgan Chase predicts it could reach 1.50 Canadian dollars for the first time in decades.
Data from the Commodity Futures Trading Commission shows that speculative traders reduced their bullish dollar bets last week, but the derivatives market remains long on the US currency. Leveraged funds have increased their bets against the euro and Canadian dollar.
Options market activity also suggests further downside for the euro. Traders added to their bearish bets at the fastest pace since June, while long-term sentiment remains near its most pessimistic since 2022.
"The Trump administration is using tariffs as a negotiating and strategic tool," said Rodrigo Catril of National Australia Bank. "The dollar is responding accordingly amidst the heightened uncertainty."