After Trump’s protectionist bombshell, investors head for safe havens, mostly

U.S. two-dollar billsPhoto by Leslie Shaffer

After U.S. President Trump launched a bombshell of plans for protectionist tariffs on aluminium and steel imports, markets headed to the safe havens. Or at least, some of them.

Stephen Innes, head of trading Asia Pacific at Oanda, said in a note on Friday that Trump’s move was “all but assuring an escalation of global protectionist policies and a possible outright trade war.”

He noted that markets were positive until Trump’s “tariff torpedo” hit Wall Street.

”In concert, both fixed income and gold rallied as investors piled into safer investments,” Innes noted.

Yen climbs

The dollar/yen tumbled from levels above 106 on Thursday to as low as 105.75 in Asia trade on Friday as funds headed into the safe-haven yen.

”Yen crosses are feeling the pressure from the global equity market sell-off as the yen’s haven appeal remains in vogue,” Innes said. “We should expect downside pressure to remain on the dollar/yen.”

Others were also expecting that the yen would climb despite solid U.S. data and the prospects of tighter monetary policy in the U.S.

“Normally, the dollar/yen should benefit from the prospect of tighter monetary policy, especially when the ISM manufacturing and personal income reports surprise to the upside,” Kathy LIen, managing director of forex strategy at BK Asset Management, said in a note late Thursday U.S. time.

“But nothing matters more right now than the risk of trade wars ahead,” she said.

She expected the dollar/yen would fall below 106 and that its next stop would be at 105.

Some pointed to another safe-haven play, U.S. Treasurys, as likely to see gains.

“As the market focuses on Trump’s protectionist stance and the looming Italian elections (4 March), U.S. Treasurys are getting some support,” strategists at DBS said. “If trade tensions escalate, Treasurys are likely to perform well, playing the traditional role of safe haven.”

Dollar loses ground

But another traditional safe haven, the U.S. dollar lost ground, with the dollar index, which measures the greenback against a basket of currencies, falling as low as 90.114 in Asia trade on Friday.

The dollar, which had been bolstered recently on expectations that the U.S. Federal Reserve might hike interest rates more than expected this year, could be taking a hit from the rush of funds into Treasurys.

Bonds yields and prices move inversely; that means the rise in Treasury prices is diminishing the yield advantage that made U.S. dollar-denominated assets more attractive.