The wave of risk aversion sent sovereign bond yields tumbling across the world. Benchmark U.S. Treasury yields fell to their lowest levels since September 2017 while New Zealand bond yields tumbled to a record low.
The mood darkened after the People’s Daily newspaper, owned by China’s ruling Communist Party, said Beijing was ready to use rare earths for leverage in its trade dispute with the United States. “Don’t say we didn’t warn you,” it added in a strongly worded commentary.
“Concerns about global trade are being felt across asset classes and the currency markets are feeling the pressure,” said Nikolay Markov, a senior economist at Pictet Asset Management.
The Swiss franc, a currency that usually gains when risk aversion is strong, gained against the euro and was within striking distance of a near two-month high hit last week.
The yen edged 0.13 percent lower to 109.50 against the dollar.
The dollar - bolstered by its status as the world’s reserve currency - held its ground against the euro, the pound and other currencies.
It was less than half a percent below a two-year high of 98.37 hit last week against a basket of its rivals. It was broadly steady at 98.03.
“Investors currently regard the greenback as the go-to instrument in a time when global growth is threatening to turn lower on the back of a trade dispute and political fragmentation abroad,” said Konstantinos Anthis, head of research at ADSS.
The U.S. Treasury Department said in a report on Tuesday it reviewed the policies of an expanded set of 21 major U.S. trading partners and found that nine required close attention due to currency practices: China, Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, and Vietnam.
Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch, said the report had a muted impact on risk sentiment, adding that investors are watching how the United States and China will deal with their trade dispute going into the G20 meeting in Japan next month.