The Japanese yen surged to a three-month high against the dollar on Thursday, with the Swiss franc at a one-month high as investors sought out the safe-haven currencies, fearing the U.S.-China trade conflict will escalate.
Two days of negotiations begin in Washington on Thursday, and traders are waiting to see whether Chinese and U.S. officials can salvage a deal to prevent more U.S. tariff increases.
Currency moves this week in response to the latest trade hostilities have been fairly muted, but Thursday's jump in the yen and the Swiss franc - which tend to attract demand in times of strife - suggested investor nerves have begun to fray.
The was more than half a percent stronger in mid-morning trade, last at 109.53 to the dollar, the fewest since Feb. 4. The dollar bought 1.013 Swiss francs on Thursday, the weakest against that currency since April 18. Some investors predicted both safe-havens have further to run.
While equities markets have begun to price in increased tariffs - the S&P 500 fell 1.23% on Thursday morning - "the foreign exchange market still needs to play catch-up. We certainly haven't seen the volatile moves we would have expected under a scenario like this," said Dean Popplewell, chief currency strategist at Oanda.
"The go-to currency risk-aversion plays like Swiss or yen - the actual rally in those currencies still has some ways to go to fully price in a trade war."
The main casualties have been the Australian dollar, a proxy for Chinese economic prospects, the U.S. dollar and the offshore Chinese yuan.
"The Chinese yuan really is the world's most important currency," said Societe Generale analyst Kit Juckes. "It isn't the most traded but is an anchor of stability for all markets and if that anchor is dislodged it will lead the dollar and yen higher."
U.S. President Donald Trump said on Wednesday that China "broke the deal" reached in talks with the United States, and vowed not to back down on raising tariffs or imposing new ones unless Beijing "stops cheating our workers."