How markets react to new tariffs

By the OFX team | 9 April 2025 | 6 minute read

It is an understatement that the announcement of the new tariffs policy of the Trump Administration has sent shock waves through the financial markets. With many traded assets hit by market corrections, and uncertainty reigning, there are precious few places to go to try to ride-out the storm.

The global markets quite often gravitate to ‘safe haven’ assets in circumstances like the present. Usually, assets including gold, government bonds (mainly US Treasuries, but often, UK Gilts and German Bonds), and certain currencies – such as the US dollar, the Swiss franc and the Japanese yen – fit the bill.

Gold reclaims centre stage

Gold, the oldest safe-haven asset of them all, has been on a tear since late 2022, on the back of persistent geopolitical uncertainty and continued central bank purchases; that is gold’s traditional role as a safe-haven asset, which holds its value or appreciates in times when political and economic fears cause turmoil. But more recently, the yellow metal has been heading northward as if turbo-charged, as the tariff news has hit the markets. In early April, gold reached an all-time high of US$3,168 an ounce, up 21.5% for 2025 to date.

However, gold has come back, at time of writing, to US$3,037.65 an ounce – still up 16.5% year-to-date. Sometimes, gold is a victim of its own success as a safe-haven: there can be simple profit-taking, or some gold holders find that they have to sell their gold positions in order to offset losses elsewhere.

Still, 2025 has seen gold perform well in its safe-haven status: a sometimes surprising role for an asset that does not have a fundamental intrinsic value, does not provide any cash flow or yield (in fact, it costs money to hold it), a right to future earnings or a promise of repayment at a later date. (Silver and palladium also display safe-haven qualities for medium- and long-term investment; and a recent study¹ argued that wheat and corn are the best assets to use as hedges and safe havens, for all types of investors.)

For many of the investors flooding into gold at present, it seems to be a case of NETGO (Nowhere Else to Go).
And gold’s recent slide from its record high does not mean that level won’t be tested again: with the markets now appearing to expect the Federal Reserve to cut interest rates by up to a whole percentage point by the end of the year, gold could easily push higher.

Following the most recent surge, State Street has now boosted its 2025 gold bull case outlook to a range of US$3,100–US$3,400 an ounce, up from US$2,900–US$3,100 an ounce. Citi and UBS both just lifted their short-term gold price forecasts from US$3,000 an ounce to US$3,200 an ounce. Bank of America sees gold at US$3,500 an ounce: “We believe gold could rally to $3,500 an ounce if investment demand increases by 10 per cent, so we make this our new price forecast,” says the bank.

And Goldman Sachs is even more bullish, lifting its end-2025 forecast to US$3,300 an ounce (versus an earlier forecast of US$3,100) and its forecast range to US$3,250–US3,520 an ounce. In extreme tail scenarios, Goldman Sachs says, gold “could plausibly trade above US$4,200 an ounce by end-2025 and exceed US$4,500 an ounce within the next 12 months.”

A mixed picture for currencies

Gold has certainly done better for investors seeking a safe place to park money than the US dollar, which has been overwhelmed by uncertainty over tariffs and concern over their impact on US economic growth. Since the tariffs announcements, the greenback has gone backward against gold, the Swiss franc and the Japanese yen, as capital is pulled out of US assets as the US “economic exceptionalism” story struggles.

The yen often benefits from safety-seeking flows, and that has been the case in 2025: since mid-January, the Japanese currency has gained 9.5% against the greenback year-to-date, a larger rise than in any full year since 2020. The clear global move to ‘risk-off’ mood, and relatively hawkish interest-rate expectations of the Bank of Japan (BoJ) are providing further support to the JPY.

The BoJ does not want the yen to slide, which would be inflationary, but raising rates too aggressively could hurt growth. The central bank held rates steady in March, but stubbornly high food inflation does give hawks confidence that Japanese interest rates will rise later this year.

The Swiss franc has also seemingly picked-up safe-haven flows against the greenback. Beginning the year at 0.91, the USD/CHF currency pair has plunged to as low as 0.8588, a 5.6% fall. But there is a persistent market theory that interest-rate differentials between the United States and Switzerland are more of an influence on the “Swissie” than safe-haven considerations, correlating closely in the first quarter of 2025.

Historically, the euro has also been regarded as a safe place for investors’ money due to its high liquidity, status as a major reserve currency, the Eurozone’s sizeable economy, and the stable policies of the European Central Bank. But it is being somewhat overlooked this time around, in favour of the Yen and the Swiss franc

Bond markets reflect investor caution

US Treasuries are also widely viewed as a safe haven asset, and they have acted that way in the wake of President Trump’s “reciprocal tariff” policy rollout, which has caused investors to flood into bonds for safety, on fears of a global recession. The 10-year Treasury yield topped 4.8% earlier this year on hopes that Trump would boost the US economy with tax cuts, but in the first week of April, it sank to 3.991% (bond yields move inversely to bond prices). Investors clearly expect the Federal Reserve to have to cut rates, and the 10-year yield is down 8.7% since the before the tariff announcement.

But the US dollar, which is also a traditional safe-haven, is not faring well – despite the fact that for an offshore investor to buy US Treasuries, they need to convert another currency to US dollars. For the moment, the greenback seems to have too many problems on its plate.

How could this impact currencies?

The recent tariff escalations have significantly influenced major global currencies, as investors seek stability amid growing economic uncertainties. Traditionally considered safe haven currencies, the Japanese yen and Swiss franc, have appreciated notably. The yen reached a six-month high against the US dollar, driven by its safe-haven appeal and expectations of potential interest rate hikes by the Bank of Japan. Similarly, the Swiss franc strengthened due to increased demand for assets perceived as secure during market turbulence.

Conversely, the US dollar has experienced depreciation against these currencies. Despite its traditional safe haven status, concerns over the domestic economic impact of the tariffs and potential retaliatory measures have undermined investor confidence. The US dollar index (DXY) dropped 0.44% on Tuesday and is down over 1% since the tariff announcement².

In Asia, the Chinese yuan declined to its weakest level since 2023, reflecting concerns over the impact of US tariffs on China’s economy. Similarly, the Indian rupee weakened, influenced by the yuan’s depreciation and fears of broader economic repercussions from escalating trade tensions.

Commodity-linked and risk-sensitive currencies, such as the Australian and New Zealand dollars, have also faced downward pressure. The Australian dollar fluctuated, peaking at 61.2 US cents on false reports of a US tariff pause, before settling back around 60 US cents³.

These currency movements underscore the broader market volatility and the shifting landscape of investor sentiment in response to the recent tariff developments.​

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