Markets are navigating another volatile session, with the U.S. dollar coming under pressure as global investors reassess its role as a safe haven amid escalating trade tensions and a lack of policy clarity.

Market Overview

• USD/CAD: Down 0.75%, marking a significant move lower.
• EUR/USD: Up 0.8%, as the euro gains favor amid shifting sentiment.
• GBP/USD: Flat, as sterling underperforms relative to its peers.

Shifting Perceptions: Is the Dollar Losing Safe Haven Appeal?

With tariff policies now fully in effect and no reported concessions from U.S. trading partners, questions are emerging around the dollar's safe haven status.

Investors appear to be diversifying into alternative currencies, with particular strength observed in the euro and interest in traditional havens such as the yen.

Why Sterling Lags

Despite broad dollar weakness, sterling remains relatively flat, weighed down by concerns around the U.K. gilt market:

• Reports suggest hedge funds are being forced to liquidate gilts to meet margin calls. 
• This has led to selling pressure, dampening GBP's reaction to broader USD softness.

China Responds: Tariffs and Yuan Strategy

• China has raised tariffs on U.S. goods to 84%, escalating the trade standoff.
• Debate continues over the People’s Bank of China’s (PBOC) role in managing the yuan.
• Some analysts suggest a controlled depreciation of the yuan is being engineered to cushion the economic impact of U.S. tariffs.
• Others, including official sources in China, dispute the notion that the RMB is being used as a tactical tool.
• Regardless, the takeaway is clear: China is employing multiple levers to stabilize its economy, with currency policy playing a central role.

Recession Fears Grow

• The market is increasingly pricing in recessionary risks, with many major U.S. bank CEOs now openly discussing the potential for an economic downturn.
• The absence of a policy pivot on tariffs continues to weigh on sentiment.
• As one major bank put it: “While the market has priced in a much larger weight on the recessionary case, risks remain skewed to the downside unless we see a policy shift.”

The dollar's role as the anchor currency in times of stress is being tested, as geopolitical and economic risks mount. While the euro leads gains today, sterling lags amid domestic concerns. China's evolving strategy, combined with rising global recession fears, leaves the market in a fragile, risk-sensitive state, with near-term direction likely dependent on policy signals and cross-border responses.