The U.S. dollar continued its steep decline in Friday’s Asian trading, following its largest single-day drop in over three years. Mounting economic uncertainty, renewed tariff tensions with China, and increased expectations of Federal Reserve rate cuts have combined to fuel a flight from the greenback into traditional safe havens.
On Thursday, the Bloomberg Dollar Spot Index plunged 1.5% — its steepest fall since 2022 — as investors rapidly exited U.S. assets. The cost of hedging against further dollar weakness surged to levels not seen since March 2020, when the onset of the COVID-19 pandemic sent shockwaves through global financial markets.
“U.S. assets are broadly underperforming amid tariff uncertainty and rising concerns about the economic outlook,” said Felix Ryan, analyst at ANZ Banking Group in Sydney. “So far, European currencies — especially the euro — and traditional safe havens are benefiting the most.”
In a sign of rising investor anxiety, the options premium for protecting against further dollar declines versus a basket of major peers spiked to a five-year high. Traders have also significantly increased their bets on deeper interest rate cuts by the Federal Reserve before year-end, as recessionary fears intensify. This shift in sentiment has weighed on U.S. equity markets, with stocks tumbling again Thursday after the White House confirmed U.S. tariffs on Chinese imports had surged to 145%.
“The aftermath of the new tariffs on China has sparked a renewed flight to safety,” said Jayati Bharadwaj, currency strategist at TD Securities. “The dollar is under pressure from diminished expectations for U.S. growth, increased speculation over Fed policy easing, and broad portfolio rebalancing away from U.S. equities toward international markets.”
The impact has been stark in the $7.5 trillion-a-day global currency market, which has remained volatile in recent weeks amid shifting geopolitical signals and mixed economic data. Since peaking in February, the dollar index has fallen over 6%, with a further 0.3% slide recorded in Friday’s early trading.
Safe-haven currencies have emerged as key beneficiaries. The Swiss franc surged by nearly 4% on Thursday to 0.8254 per dollar — its biggest one-day gain since 2015, when Switzerland unexpectedly lifted its euro cap. The Japanese yen also strengthened by more than 2%.
“The Swiss franc is gaining on the safe-haven bid, given the market uncertainty surrounding tariffs,” said Brad Bechtel, global head of foreign exchange at Jefferies Financial Group Inc. “Most asset managers are turning to the franc and yen as their preferred hedging instruments.”
With market volatility expected to persist, analysts say the trajectory of the dollar will largely depend on the clarity of U.S. trade policy and upcoming signals from the Federal Reserve on the direction of interest rates.
Related topics: