TOKYO: Traders swept back into safe havens like the yen and Swiss franc and sold the Australian dollar on Thursday, after U.S. President Donald Trump ramped up his trade war against China even as he abruptly paused tariffs for 90 days on many other nations.
Risk sensitive currencies surged overnight, with the yen and Swiss franc tumbling following Trump’s unexpected respite from the hefty reciprocal duties levied in his “Liberation Day” announcement from a week ago, which triggered historic stock and bond routs.
The uptick in safe haven currencies came even with Asian stock markers surging, as they joined the global relief rally.
Trump maintained a baseline tariff rate of 10% while ratcheting up his trade war with China by further raising the tariff rate to 125% on goods from the world’s second-biggest economy.
That tempered some of the cheer from the overnight pause on tariffs, as markets fretted about the longer term impact on growth and how Trump’s economic policies will play out during his term.
“Regardless of how the next 90 days evolve, the U.S.’s international reputation has been eroded,” ANZ analysts said in a note to clients.
“The U.S. dollar’s valuation extremes against some currencies seem increasingly unjustified in the medium term.”
The Chinese yuan weakened slightly in offshore trading, after a more-than 1% round-trip in the past two days to an all-time low and back again.
U.S. Treasury Secretary Scott Bessent asserted on Wednesday that the sweeping tariff pullback had been the plan all along to bring countries to the bargaining table. Trump, though, later indicated that the near-panic in markets that had unfolded since his April 2 announcements had factored into his thinking.
“It seems likely that the U.S. President blinked (when) confronted with a potential recession, a political backlash, a near equity bear market and the early warning signs of a financial crisis,” said Kyle Rodda, an analyst at Capital.com.
“There’s now less confidence in the U.S. government amongst investors,” he said.
“Even if President Trump does cut deals with trading partners, there’s harm that’s been done to the markets and the U.S. economy that will take time to heal from.”
The U.S. dollar dropped 0.7% to 146.68 yen as of 0100 GMT, It similarly fell 0.62% to 0.8522 Swiss franc.
The euro added 0.32% to $1.0985.
The Aussie slipped 0.33% to $0.6132, after earlier slumping as much as 0.5%. On Thursday, it soared 3.3% having inthe same session plumbing a five-year trough at $0.5910.
Australia’s currency tends to act not only as a barometer of broad market sentiment, but also as a liquid proxy for the Chinese market.
The offshore yuan eased 0.2% to 7.3545 per U.S. dollar in the latest session, after sliding to an all-time low of 7.4288 earlier in the week, and then reversing course.
Beijing filed a new complaint with the World Trade Organization on Wednesday after earlier calling U.S. levies “reckless”.
In a tit-for-tat tariff escalation, China now has an 84% duty on U.S. imports.
“We believe Beijing views these U.S. trade actions as nothing short of a declaration of economic war,” BCA Research analysts wrote in a note.
“Chinese authorities will allow the yuan to depreciate materially,” the note said. “The U.S.-China confrontation is set to escalate from here.”
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