The current market environment is characterised by lightning-fast corrections. Last week’s turbulence, triggered by troubles at US regional banks, exemplifies this trend. While reminiscent of the Silicon Valley Bank crisis or even the early days of the 2007 subprime meltdown, experts currently view these setbacks as idiosyncratic rather than systemic.
Interestingly, gold and other precious metals also suffered a panic-driven sell-off, reinforcing the view that this is not the onset of a broader financial crisis. The rapid reaction of investors—and their algorithmic counterparts—highlights the speed and sensitivity of today’s markets.
USD: Trade tensions and credit concerns stall dollar momentum
Over the past few weeks, the USD has strengthened notably. Strong equity inflows due to the AI rally were the main driver of this recent dollar strength, masking the headwinds of a slowing economic backdrop. Fueled by AI optimism, the USD temporarily appreciated by more than 2.5% from a low in mid-September. However, this uptrend was halted by the recent re-escalation of trade tensions with China and the stock market slide due to concerns about domestic credit quality. Despite the AI-fueled optimism, the Federal Reserve’s rate cuts are eroding the dollar’s interest rate advantage, and we continue to believe that these headwinds will soften the US dollar in the long run.
Global currency trends: Yen weakens, Franc holds firm
Japanese yen (JPY): Political turmoil delays strengthening
The yen has been the worst-performing G10 currency this month, dropping over 2%. Political instability—specifically the breakup of Japan’s ruling coalition—has pushed expectations for the next Bank of Japan rate hike further out. However, as the Fed continues to cut rates and the BoJ resumes normalization, the yen’s interest rate disadvantage is expected to narrow.
Swiss franc (CHF): Safe-haven status keeps it strong
In contrast, the Swiss franc has edged higher, supported by safe-haven flows amid global trade uncertainties. The Swiss National Bank (SNB) is unlikely to intervene aggressively, preferring to slow appreciation rather than target specific levels. Still, the franc’s rate disadvantage suggests a slightly softer outlook over time.
Gold and silver: Fundamentals remain strong
Gold and silver experienced a sell-off following President Trump’s remarks labeling trade tensions with China as “unsustainable.” However, analysts view this as a healthy consolidation rather than a correction. Gold continues to benefit from safe-haven demand, central bank buying, and expectations of lower US interest rates. Silver, closely tied to gold, also gains from safe-haven flows but is more sensitive to interest rate movements and dollar weakness. Both metals are expected to maintain their constructive outlook.
Gold still offers the most favourable fundamentals, benefitting from a strong mix of safe-haven demand and central bank buying, paired with the outlook for lower US interest rates and a weaker US dollar. We see safe-haven demand as a cyclical factor which could become structural should the concerns about the status of the US dollar and the independence of the US Federal Reserve be confirmed. Central-bank buying is a structural factor, reflecting the desire of emerging economies to be less dependent on the US dollar as a reserve currency. Silver has strong ties to gold, also benefitting from safe-haven demand but exhibiting a stronger sensitivity to lower US interest rates and a weaker US dollar.
Platinum and Palladium: Speculative surge, structural decline
Unlike gold and silver, platinum and palladium are primarily industrial metals with limited safe-haven appeal. Their recent rally appears driven by speculative activity, and structurally, demand is expected to decline due to the rise of electric vehicles reducing the need for automotive catalysts.
Conclusion: Dollar strength may fade due to weak fundamentals
While AI-driven equity inflows have temporarily boosted the US dollar, underlying economic headwinds, slowing growth, declining rates, and geopolitical tensions, suggest a softer outlook ahead. Investors should remain cautious and consider safe-haven assets like gold and the Swiss franc, while keeping an eye on political developments and sector-specific risks such as shadow banking and regional bank instability.