Risk aversion returns; Dollar, Treasuries and Wall Street slip

• Dollar tumbles, safe haven franc at more-than-a-decade high
• Recession fears return amid US-China trade conflict
• US CPI slows down, allows dovish rate cut pricing
• Wall Street retreats, Treasuries drop, gold hits new record high

Investors remain worried amid US-Sino tensions

The US dollar continued to tumble against all its major peers on Thursday and during the Asian session on Friday, hitting a more-than-2-year trough against the euro, and a more-than-a-decade trough against the Swiss franc.

Combined with a retreat in equities after Wednesday’s astounding rally, as well as a sell-off in Treasuries and a new record high in gold, the dollar’s fall suggests that investors’ confidence derived by Trump’s decision to pause tariffs has started to wane.

This may be due to the ongoing conflict with China. Yes, the 90-day tariff pause for other nations could be seen by the markets as an invitation to the negotiating table, but China’s treatment suggests Trump is not willing to back down when it comes to China. China won’t do so either, according to Chinese officials’ remarks.

After China retaliated against the US’s actions by imposing 84% tariffs, Trump was quick to announce that the US will raise duties on Chinese imports to 145%. Now, the ball is in China’s court and further retaliation could heighten fears that a recession could still be a very likely scenario.

US inflation eases, investors pencil in 90bps Fed cuts

Apart from concerns about the US-Sino trade relationships, yesterday, dollar traders had to digest the US CPI numbers for March. The headline CPI rate slipped to 2.4% y/y from 2.8%, while the core rate slipped to 2.8% from 3.1%. This allowed market participants to increase their Fed rate-cut bets again. From anticipating 80bps worth of reductions in 2025, they are now penciling in around 90.

However, the improvement in inflation is unlikely to be sustained in the wake of tariffs and the Fed may need to find a way of balancing its policy response in order to safeguard the economy on the one hand but prevent inflation from getting out of control on the other.

Massive dampening of US assets, gold surpasses $3,200

Despite bets of lower borrowing costs, Wall Street participants abandoned equities again, corroborating the notion that recession fears are well entrenched within the financial community. All three of the main stock indices slipped more than 2%, with the tech-heavy Nasdaq losing 4.31%.

Investors did not abandon US equities only. They seem to be fleeing out of US assets in general. Besides the bleeding in the dollar and the pullback on Wall Street, US Treasuries were also sold, with the selloff picking up pace during the Asian hours today, evident by the rally in the 10-year yield to nearly touch 4.5%.

With data suggesting that China has been cutting its US Treasury purchases for months now, the world’s second largest economy may have accelerated the pace, contributing to the aforementioned market reaction.

Those flows may be diverted into gold, which hit a new record high today, slightly above $3,200 as the precious metal turned into a safe haven again amidst the uncertainty surrounding the trade conflict between the world’s two largest economies.