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What safe haven after the April US tariff announcement? Implications for euro area financial stability

Author

Listed:
  • Baudino, Paolo Alberto
  • Grothe, Magdalena
  • Habib, Maurizio Michael
  • Manu, Ana-Simona
  • McQuade, Peter
  • Ricci, Martino
  • Siciliano, Emilio
  • Tomov, Toma
  • Tondo, Luca
  • Watfe, Gibran

Abstract

Trade turmoil in April 2025 saw a marked change in cross-asset behaviour compared with typical patterns. Notably, the US dollar depreciated strongly while US Treasury yields rose – the opposite of what usually happens in a risk-off environment. This prompted discussions as to whether the safe-haven properties of US dollar-denominated assets might be changing. This is particularly important for euro area financial stability since euro area investors hold US dollar-denominated securities in an amount equivalent to €6 trillion, which represents a significant share of their portfolios. As policy uncertainty remains high and alternative safe assets are scarce, investors’ risk management practices may be evolving. Immediate and decisive implementation of policies associated with the savings and investments union and the capital markets union would help foster an alternative market of safe assets for euro area and global investors. JEL Classification: G11, G15, G23, F31

Suggested Citation

  • Baudino, Paolo Alberto & Grothe, Magdalena & Habib, Maurizio Michael & Manu, Ana-Simona & McQuade, Peter & Ricci, Martino & Siciliano, Emilio & Tomov, Toma & Tondo, Luca & Watfe, Gibran, 2025. "What safe haven after the April US tariff announcement? Implications for euro area financial stability," Financial Stability Review, European Central Bank, vol. 2.
    • Handle: RePEc:ecb:fsrart:2025:0002:1
    Note: 1601201
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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