The US dollar was on track Friday to record its worst weekly performance since July, as escalating trade tensions between the United States and China, along with signs of weakness among US regional banks, drove investors toward safe-haven assets such as the Swiss franc and the Japanese yen.
Further signs of softness in the US economy have emerged, while the ongoing federal government shutdown has delayed the release of key economic data, leaving investors less certain about the true state of economic conditions.
The Swiss franc reached its strongest level in a month, while the yen also strengthened, partly supported by comments from Bank of Japan Governor Kazuo Ueda, who suggested that an interest rate hike could take place this month.
Dylan Wu, research analyst at Pepperstone, said that rising concerns over the trade war, the Federal Reserve’s independence, and the government shutdown are making the dollar vulnerable to what is known as the “debasement trade,” where investors turn to assets whose value cannot easily be devalued, such as gold and cryptocurrencies.
“It’s really hard to find a bullish scenario for the dollar index,” Wu added. “Rather than betting on a single currency, investors are shifting toward gold, digital assets, and other hedges against risk.”
The Swiss franc was among the best performers against the dollar, which fell 0.4% to 0.7898. The dollar index — which measures the greenback’s performance against six major currencies — was heading for a weekly decline of 0.7%, its biggest since late July.
The dollar also fell 0.39% against the yen to 149.825, slipping below the 150 mark for the first time since October 6.
Bank of Japan Governor Ueda said during a visit to Washington on Thursday that the central bank is ready to raise its key interest rate if the likelihood of achieving its growth and inflation forecasts increases.
The yen’s rise came despite its defensive position since the election of Sanae Takaichi — known for her dovish economic stance — as leader of the ruling Liberal Democratic Party earlier this month. However, a parliamentary vote to confirm her as prime minister was postponed due to disagreements within the ruling coalition.
Reuters reported Friday that Japan’s House of Representatives Steering Committee approved holding the prime ministerial vote on October 21.
Fiona Cincotta, senior analyst at City Index, said, “Rising concerns over the US-China trade war and anxiety around regional US banks are reminding markets that things may not be as rosy as investors once thought.”
“There is clearly a shift toward safe-haven assets,” she added. “In equities, S&P 500 futures are down 1.4%, gold is trading near record highs, and the Swiss franc is performing strongly — all signs of a broader move toward risk aversion.”
In other currency markets, the euro rose 0.1% to 1.1698 dollars, while the British pound slipped 0.2% to 1.341 dollars.
On the monetary policy front, Federal Reserve Governor Christopher Waller said he supports another rate cut at the upcoming Fed meeting, citing mixed readings on the labor market.
Meanwhile, Stephen Miran — the newest member of the Federal Reserve Board of Governors and an economic adviser to President Donald Trump — renewed his call for a more aggressive series of rate cuts in upcoming meetings than some of his colleagues prefer.
Miran’s temporary term is set to expire at the end of January, while Fed Governor Lisa Cook continues in her role as the courts consider legal challenges to Trump’s attempt to remove her.
The Federal Reserve’s Beige Book offered limited support for maintaining current interest rates, noting emerging signs of economic weakness, including an uptick in layoffs and reduced spending among middle- and lower-income households.
