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The U.S. dollar fell to a new low for 2025 on Thursday, while global stocks eased from record highs, as a mix of rising tensions in the Middle East and concerns over the fragility of a U.S.-China trade truce prompted investors to seek refuge in safe-haven assets.
The dollar, which has lost around 10% in value against a basket of currencies this year, dropped to its lowest level since April 2022 during European trading. Meanwhile, the global stock market took a breather from its nearly uninterrupted rally since early April, with the MSCI All-Country World index remaining flat just below Wednesday’s all-time high.
In Europe, the STOXX 600 index declined by 0.8%, led by airline stocks, which were hit by the growing tensions in the Middle East, including the deadly crash of an Air India flight bound for London, which killed at least 30 people near Ahmedabad, India.
Tensions in the Middle East Drive Investors to Safe-Havens
Futures for the S&P 500 and Nasdaq fell by 0.5% to 0.6%, reflecting the cautious sentiment in global markets. The U.S. administration announced on Wednesday that U.S. personnel were being evacuated from the Middle East due to heightened security risks, which briefly drove oil prices up by 4% before they receded.
Adding to the uncertainty, Iran reaffirmed its stance on uranium enrichment, with a senior official stating that Iran would not abandon its right to enrich uranium, while also warning of a potential Israeli military strike.
Safe-Haven Assets Rally
The rise in geopolitical tensions, coupled with concerns over U.S. trade policies, led investors to flock to classic safe-haven assets. The Swiss franc and the Japanese yen strengthened, with the dollar falling 1% against the franc and 0.7% against the yen. Gold also saw a rise of nearly 1%, reaching $3,385 an ounce as investors sought stability.
The optimism that followed a positive conclusion to U.S.-China trade talks earlier in the week, with President Trump calling it a “great deal with China,” quickly evaporated by Thursday amid the ongoing trade uncertainties and rising global tensions.
Trump’s Uncertainty and Tariff Policies Impact Markets
In a new development, President Trump announced that the U.S. would be sending letters to dozens of countries in one to two weeks outlining the terms of potential trade deals. These countries would have the option to accept or reject the offers, further adding to market uncertainty. Trump’s erratic tariff policies have stirred volatility in global markets this year, leading investors to retreat from U.S. assets, particularly the dollar, due to concerns over rising prices and slowing economic growth.
The euro rose as much as 1.07%, reaching $1.16, its highest level since October 2021, while U.S. Treasuries saw a rally, pushing yields down by 3.5 basis points to below 4.38%. The two-year Treasury yields, which are more sensitive to inflation and interest rate expectations, eased by 2.7 basis points to 3.92%.
Focus Shifts to Producer Inflation and Fed Rate Outlook
As the day progresses, markets will focus on the upcoming producer inflation report, as some components of the data feed into the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditure (PCE) Index.
The consumer inflation data released on Wednesday kept the prospect of a Federal Reserve rate cut alive, with expectations that the Fed might reduce rates by a quarter point in September, as policymakers continue to assess the effects of tariffs on the broader economy.
The dollar’s decline and the pause in stock market gains reflect the cautious sentiment triggered by heightened geopolitical tensions in the Middle East and lingering concerns over U.S. trade policies. As investors seek safe-haven assets, such as the Swiss franc, yen, and gold, the outlook remains uncertain. Markets are also focused on upcoming inflation data, which could influence the Federal Reserve’s decision on future interest rate cuts, adding another layer of complexity to an already volatile market environment.
