Concerns over potential economic fallout from Trump’s tariffs gripped global markets, shaking investor sentiment across asset classes. The risk-off mood deepened following fresh economic warnings from the International Monetary Fund (IMF) and Fitch’s credit downgrade of China. Retaliatory tariffs from Canada, China, and France—along with more expected—fueled fears of an escalating trade war.
Adding to the uncertainty is the cautious mood ahead of Fed Chair Jerome Powell’s speech and the upcoming US Nonfarm Payrolls (NFP) report.
The US Dollar, equities, crude oil, and bond yields all declined, while traditional safe-haven currencies, such as the Swiss Franc (CHF) and Japanese Yen (JPY), gained ground. Surprisingly, gold failed to capitalize on the weaker US dollar and risk-off flows, as concerns about demand from China, one of its major consumers, weighed on sentiment.
Meanwhile, cryptocurrencies like Bitcoin (BTCUSD) and Ethereum (ETHUSD) found support at lower levels, stabilizing after recent losses, as the USD’s pullback helped limit further downside despite continued industry pessimism and broader market aversion.
Broad-based weakness in the US Dollar—fueled by fears of economic contraction due to aggressive tariffs and uncertainty surrounding the Fed’s ability to maintain a hawkish stance—boosted major currencies despite broader macroeconomic gloom. As a result, EURUSD and GBPUSD climbed to their highest levels since early October 2024, while USDJPY and USDCHF slid to six-month lows.
Adding to the bullish tilt were downbeat US data and the White House’s openness to negotiate tariff relief with the UK. However, early Friday sees the EUR and GBP struggling to extend gains, as mixed signals from the ECB Monetary Policy Meeting Accounts, the EU’s tariff retaliation stance, and softer UK PMIs test buyer conviction.
Elsewhere, BoJ Governor Ueda and Deputy Governor Uchida offered cautious tones in their speeches, tempering the USDJPY drop. Yet, reports that Tokyo is weighing responses to US tariffs, possibly including an extra budget, keep JPY bulls hopeful. On the other hand, USDCHF continues to decline, pressured by the Swiss Franc’s safe-haven appeal and hints of improved Swiss-US trade relations.
The US Dollar’s broad slump helped the Australian, New Zealand, and Canadian Dollars end Thursday on a firmer note. However, lingering concerns over China’s economic outlook—a key trading partner for all three—along with their status as risk-sensitive currencies, weighed on sentiment and reversed the previous day’s moves early Friday.
As a result, AUDUSD and NZDUSD posted losses, while USDCAD rebounded from a four-month low, albeit with limited upside due to persistent USD weakness. Crude oil, Canada’s top export, suffered a steep decline as demand fears resurfaced alongside news from OPEC+ hinting at potential supply-side shifts. Further weighing on sentiment was Fitch’s downgrade of China to 'A' with a stable outlook, intensifying global growth concerns.
Additionally, investor caution ahead of the US and Canadian monthly employment data, coupled with renewed tensions in US-Canada relations—despite some tariff relief under the USMCA—contributed to the USDCAD pair’s corrective bounce.
Despite a weaker US Dollar and broad risk-off sentiment, Gold pulled back from its record high and ended Thursday in the red, extending losses into early Friday. The retreat came as investors grew cautious over economic pessimism surrounding China, one of the world’s biggest gold customers, exacerbated by market closures in Beijing and Hong Kong.
Additionally, overbought technical conditions following a three-month rally, coupled with failure to secure a daily close above the $3,146 resistance, contributed to the correction in the precious metal’s price action.
Crude oil posted its steepest daily decline since July 2022, pressured by broad risk aversion and OPEC+’s signal to keep a production hike on the table, with the largest boost likely coming in May. The commodity also faced headwinds from rising US inventories, Trump’s call for increased domestic drilling, and fears of waning demand from key consumers like China. The move came despite a weaker US Dollar, which typically supports commodity prices.
Meanwhile, cryptocurrencies continued to struggle, with Bitcoin (BTCUSD) and Ethereum (ETHUSD) reversing their previous day’s modest rebound from recent lows. While Thursday’s bounce was partially supported by a broadly weaker USD and the US House Financial Services Committee’s backing for a stablecoin bill, industry pessimism and risk aversion continue to limit upside potential.
While global reactions to US tariffs and related political developments will continue to dominate sentiment on Friday, market participants will also closely watch Federal Reserve Chair Jerome Powell’s speech and the monthly employment reports from the US and Canada for fresh direction.
Investors are looking for Powell to validate concerns over economic uncertainty and policy headwinds, which along with softer US Nonfarm Payrolls (NFP) and slowing wage growth, to reinforce the US Dollar’s bearish bias. However, any unexpected optimism from Powell or stronger-than-expected US labor data could offer a lifeline to the Greenback. Even if the USD weakens, risk-sensitive assets such as Antipodean currencies, Gold, Crude Oil, and Cryptocurrencies may still struggle under prevailing risk-off sentiment. Meanwhile, the Canadian Dollar could face added pressure if the domestic jobs report bolsters dovish expectations for the Bank of Canada (BoC).
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