Is the dollar abandoning its role as a safe haven?

  • by Ahmed Mamdouh
  • September 6, 2018, 1:59 AM
 49       30      

Recently, investors have been flocking to the U.S. dollar during times of market panic, more specifically in periods of elevated trade tensions, yet today the charts look pretty different.

In a classic manner, investors used to resort to safe havens during tensions, where they used to hold gold, yen and franc, but recently the dollar has entered the game and has become the most favorite refuge.

The new role of the dollar has largely justified its latest rally that pushed the green currency’s index up to a 14-month peak of 96.85 last month.

The dollar benefited more of being a safe haven rather than the major currency that offers the biggest yield, but for how long the dollar will continue to play this unjustified role.

The Federal Reserve is widely predicted to raise interest rates at the end of this month, where they may hike rates for a fourth time this year in December, taking quick steps towards monetary tightening compared to other major central banks. This means the dollar should be dealt with as a risky asset rather than a safe haven.

Interestingly, the dollar slipped against the yen to 111.33 and fell for a second straight session versus the franc to 0.9693 as the undergoing emerging market rout and sharp sell off in global equities prompted investors to buy classic safe havens once again.

Last month, the dollar managed to end higher against all major currencies except the franc and yen. Does this tell anything?

It seems that the dollar is about to lose its role as a safe haven and investors are gradually resorting to classic refuge assets.

Gold climbed for a second consecutive session to a high of $1203.26 an ounce, restoring back its orthodox inverse relation with stocks.

Meanwhile, there are worries of trade war as another round of U.S. tariffs on Chinese imports worth $200 billion could take effect on later in the day.

On Friday, the U.S. will release the non-farm payrolls, noting that a better than forecast figures would bolster the case for a rate hike this month, taking the dollar away from being a safe haven.

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