Gold eases from record high on profit-taking, eyes eighth weekly gain

Gold prices eased on Friday as investors booked profits from the previous session’s record high, but were set for an eighth straight weekly gain, driven by strong safe-haven demand amid concerns over US President Donald Trump’s tariff plans.

Spot gold shed 0.1% to USD 2,939.63 an ounce as of 02:24 a.m. ET (1924 GMT). Bullion has gained around 1.9% this week after rising to a record USD 2,954.69 on Thursday.

US gold futures settled 0.1% lower at USD 2,953.20.

“It’s just a classical movement of new all-time highs and profit-taking… (but) the fundamentals for gold remain solid,” said Alex Ebkarian, chief operating officer at Allegiance Gold.

Prices have shattered two record highs this week to trade above USD 2,950 an oz, as uncertainties surrounding global economic growth and political instability have underscored investor appetite for bullion, which has risen 11.5% so far in 2025.

“Demand for gold is currently being driven primarily by western investors and central banks. ETF investors appear to be jumping on the bandwagon,” Commerzbank analysts said in a note.

Trump’s fresh bout of tariff plans announced earlier this week includes duties on lumber and forest products, on top of previously announced plans to impose duties on imported cars, semiconductors, and pharmaceuticals.

This comes after the imposition of an additional 10% tariff on Chinese imports and a 25% tariff on steel and aluminum.

Gold’s safe-haven role is not fully realized yet as the shift from riskier assets to safer ones is not significant, with money still on the sidelines, Ebkarian said.

Investors are also monitoring the US Federal Reserve’s interest rate trajectory for clues, given that Trump’s policies are viewed as inflationary. Higher inflation could compel the Fed to maintain high interest rates, thus reducing the allure of non-yielding gold.

Spot silver was down 0.9% at USD 32.64 an ounce and palladium dipped 0.7% to USD 970.45. Both metals were headed for weekly gains.

Platinum shed 1.1% to USD 967.40 and eyed a weekly decline.

(Reporting by Anmol Choubey in Bengaluru; Editing by Maju Samuel, Marguerita Choy, and Mohammed Safi Shamsi)

Oil settles down USD 2, posting weekly loss as Mideast risk premium fades

HOUSTON – Oil prices settled down more than USD 2 a barrel on Friday, posting a weekly decline as investors grappled with a fading Middle East risk premium alongside uncertainty about a potential peace deal in Ukraine.

Brent futures settled down USD 2.05, or 2.68%, to USD 74.43 a barrel, while US West Texas Intermediate crude settled down USD 2.08, or 2.87%, to USD 70.40.

Brent closed 0.4% lower on the week, while US crude futures posted a 0.5% weekly loss.

The relative calm in the Middle East as the Gaza ceasefire held has reduced risk in the market, said John Kilduff, a partner at Again Capital in New York.

Later in the day, analysts also pointed to media reports indicating that researchers at the Wuhan Institute of Virology in China said they discovered a new coronavirus in bats. Oil first slipped around USD 2 a barrel when those reports surfaced, according to analysts.

Investors also continued to weigh an uptick in US crude oil stockpiles, reported on Thursday, as seasonal maintenance at refineries led to lower processing, the Energy Information Administration said.

US energy firms this week added oil and natural gas rigs for a fourth week in a row to the highest level since June, energy services firm Baker Hughes said in a report on Friday.

The oil and gas rig count, an early indicator of future output, rose by four to 592 in the week to February 21.

Traders kept an eye on potential oil supply disruptions, however, which capped some losses.

Russia said Caspian Pipeline Consortium oil flows, a major route for crude exports from Kazakhstan, were reduced by 30-40% on Tuesday after a Ukrainian drone attack on a pumping station.

Oil flows from Kazakhstan’s Tengiz oilfield via CPC are uninterrupted, Russian news agency Interfax reported on Friday, citing Tengizchevroil.

Kazakhstan has pumped record high oil volumes despite damage to its CPC export route via Russia, industry sources said on Thursday. It was not immediately clear how Kazakhstan had been able to pump record volumes.

ALL EYES ON UKRAINE

The Ukrainian drone attack helped support crude prices this week, said Alex Hodes, analyst at StoneX in a note on Friday, also pointing to analysts’ expectation that OPEC+ will delay its production cut once again, in light of crude prices remaining below USD 80/bbl.

Elsewhere, relations between Ukraine President Volodymyr Zelenskiy and US President Donald Trump deteriorated this week after Zelenskiy criticized US and Russian moves to negotiate a peace deal without Kyiv’s involvement. The rift was widened by Trump comments blaming Ukraine for starting the three-year-old conflict.

Yet after a meeting with Trump’s envoy for the Ukraine conflict on Thursday, Zelenskiy said Ukraine was ready to work quickly to produce a strong agreement with the US on investments and security.

“Trump keeps hammering Ukraine and the market is taking that as a potential easing of sanctions on Russia, and Russian oil flows coming back to the market,” said Again Capital’s Kilduff.

(Reporting by Georgina McCartney in Houston, Arunima Kumar, Yuka Obayashi in Tokyo, Siyi Liu in Singapore, and Arunima Kumar in Mumbai; Editing by David Goodman, Susan Fenton, Marguerita Choy, Jane Merriman, David Gregorio, and Diane Craft)

US growth fears compound tariff nerves

Asian stocks are set to open on the defensive on Monday, taking the baton from a bruised Wall Street on Friday as worries over the US economy and new tariff threats from President Donald Trump cast a cloud over world markets.

The local calendar is light, with New Zealand retail sales and inflation from Singapore the main data points, and Reserve Bank of New Zealand Deputy Governor Christian Hawkesby scheduled to speak in Wellington.

Investors will digest Germany’s election, which saw a victory for opposition conservatives and the far-right Alternative for Germany’s best-ever showing.

The market tone on Monday will be one of nervousness and uncertainty, as investors seek the safety of bonds, gold, and the US dollar. Japanese equity futures are pointing to a fall of 1.75% at the open.

Unexpectedly weak US and European economic activity data set the tone on Friday, and reasonably market-friendly signs over the weekend around the prospects of a US-brokered Russia-Ukraine peace deal are unlikely to improve it much.

Treasury yields fell last week, gold rose for an eighth week – its best run since 2020 – closing in on USD 3,000 an ounce, while the dollar stopped the rot of its recent selloff.

The Nasdaq fell 2.5%, its worst week in three months, lagging its global peers and indicating that US outperformance that has been the hallmark of global equities in recent years has peaked.

As Bank of America strategists quipped, the ‘Magnificent Seven’ may now be the ‘Lagnificent Seven’.

The MSCI World index dipped 1% last week, euro zone stocks shed only 0.3% over the week after making a new record high, and the MSCI Asia ex-Japan index rose 1.5% for a sixth weekly gain in a row. That is its best run since November, 2022.

A rotation out of Wall Street into Europe and Asia appears to be underway, an one can see why – US stocks are over-owned, valuations are expensive and positioning is stretched. Europe and Asia look attractive.

EPFR-tracked Europe equity funds in the third week of February recorded their biggest inflow since early 2022 and Chinese tech stocks listed in Hong Kong have surged a stunning 35% in the past six weeks.

That momentum is unlikely to last, and next week could see a retracement. But the major indices in mainland China, Japan, and India are still in negative territory for the year – could their weak exchange rates tempt a wave of inflows?

Investors cheered President Xi Jinping’s meeting last week with Chinese tech and other business leaders, and the feel-good factor seems to be making up for nervousness around the yuan and uncertainty surrounding the threat of US tariffs and a potential trade war.

Here are key developments that could provide more direction to Asian markets on Monday:

– German election result

– Germany Ifo index (February)

– Singapore inflation (January)

(By Jamie McGeever, editing by Deepa Babington)

Nvidia to offer AI trades reality check

NEW YORK – Nvidia’s profit report could steer the US stock market’s course, as investors seek confirmation that the AI-driven investment trend, which has powered equities for two years, is intact after last month’s panic-selling triggered by the Chinese startup DeepSeek.

Seen as a bellwether of the burgeoning AI industry, Nvidia is the world’s second most valuable company, with a 6.3% weight on the S&P 500, according to LSEG. Its shares have skyrocketed over 550% over the last two years.

A recent stumble, however, came after the Chinese startup DeepSeek unveiled a lower-cost AI model that was seen as a threat to the dominance of US rivals, driving Nvidia down roughly 17% on January 27, equivalent to USD 593 billion – a record one-day market value loss.

Shares have almost fully recovered from the tumble and the company said DeepSeek’s advances prove the need for more of its chips, but apprehensive investors fear earnings could revive some market turbulence.

“It’s a tough setup going into the conference call next week because there is some anxiety of wanting to kind of call the top on Nvidia. So I would not be surprised to see rotation and fairly violent market reaction under any circumstance,” said Mike Smith, Allspring’s head of growth equity team.

He said investors could rotate out of AI trades into sectors such as healthcare, software, and financials.

Nvidia options imply a 7.7% swing for the shares in either direction following the results, in line with the stock’s average move of 7.6% on the day after results over the last 12 quarters, according to data from options analytics service ORATS.

With the AI chipmaker’s market capitalization hovering around USD 3.4 trillion, the options-implied stock move equates to a market value swing of about USD 260 billion, roughly the size of Wells Fargo.

Nvidia is expected to post on February 26 a fourth-quarter profit of USD 20.89 billion, driven by a roughly 72% rise in revenues from a year earlier, LSEG data showed.

With good fourth-quarter numbers on their way, all eyes will be on the guidance Nvidia provides for both supply and demand for its chips to justify its own rich valuation, as well as the sector’s outlook.

Nvidia recently traded at about 32 times forward 12-month earnings estimates, down from about 40 in early November, according to LSEG Datastream. The S&P 500 trades at 22 times forward earnings.

“Nvidia is the last piece of the market puzzle right now that might help reset investor sentiment,” said Matt Orton, chief market strategist at Raymond James Investment Management, adding the equities market has performed well despite uncertainties around US tariff and fiscal policy, a drop in retail sales and a hotter-than-expected consumer price index.

“It can be the catalyst to help the market break out once again,” he said.

Markets have changed since the selloff triggered by DeepSeek, as Nvidia has lost a lot of its power to move all stocks since the beginning of this year. The correlation between the chipmaker and the S&P 500 fell to 30% in 2025 from 71% last year, according to Schwab’s calculations.

Still, it does not mean stocks are bulletproof in case the bellwether Nvidia disappoints. “It’s important to separate the difference between the psychological effects of Nvidia on the market from the statistical effect. To me, it is more of a psychological move,” said Joe Mazzola, Schwab’s head trading and derivatives strategist.

Investors will also be watching next week’s release of US inflation numbers for January, especially after data last month showed that inflation increased by the most in eight months in December, amid robust consumer spending on goods and services.

Hotter-than-expected inflation data would probably prompt the Fed to wait longer to cut interest rates.

(Reporting by Carolina Mandl; additional reporting by Saqib Ahmed in New York; Editing by Lisa Shumaker)

Dollar hits year-to-date lows as bulls get nervous

SINGAPORE – The yen shot to a 2-1/2 month high on Friday on the back of a jump in Japanese inflation, while the dollar was set for a third weekly drop in a row as traders calculated the start of Donald Trump’s second term has been mostly bluster on the tariff front.

The yen broke through chart resistance at 150 per dollar overnight and it strengthened as far as 149.285 per dollar in the Asia morning after Japan recorded core inflation running at its fastest pace for 19 months in January.

The euro was up 0.8% overnight and was steady in Asia at USD 1.0498 with traders awaiting an election in Germany on the weekend where polls point to a conservative coalition win.

The dollar nursed broad losses as bulls who had built up big long positions in anticipation of a trade war have backed off while Trump equivocates about tariffs.

Trump has slapped an additional 10% tariff on Chinese goods and announced plans to reimpose steel and aluminum levies from his first term, but suspended threatened tariffs on Canada and Mexico while numerous others remain – as of yet – only threats.

“It was a very one-sided trade and very heavy long positioning,” said Jason Wong, strategist at BNZ in Wellington.

“Some of those longs are becoming impatient because the only thing he has done is put (a) 10% (tariff) on China – so the market is taking some of that money off the table.”

Wong said evidence that Japan’s inflation was tipping higher – the core consumer price index rose to an annual 3.2% against expectations for 3.1% – also bolstered the case for higher Japanese rates at a time when the rest of the world might be cutting, and so a higher yen.

The yen is up 3.6% on the dollar through February so far. Japanese bonds were sold off on Friday and interest rate markets have priced in a 25 basis point rate hike in Japan by September.

A remark from Trump that a trade deal with China was possible lifted the trade-sensitive Australian and New Zealand dollars.

Comments from his Treasury secretary, Scott Bessent, that the administration had no plans to increase long-dated debt sales put downward pressure on yields and the dollar.

The dollar index on Thursday touched its lowest for 2025 at 106.29 and was last at 106.45.

The Aussie and kiwi are trading at their highest levels this year despite rate cuts on both sides of the Tasman this week, and New Zealand’s central bank flagging more to come.

Australia is in a position where there could be some more decreases in interest rates but policymakers have to be cautious, the country’s top central banker said on Friday.

The kiwi touched USD 0.5772 on Friday morning, while the Aussie has broken above 64 cents for the first time this year and touched USD 0.6404.

Trump said Chinese President Xi Jinping would visit the US, without giving a timeline, which sent up the yuan to a one-month high in onshore trade on Thursday.

In offshore trade, it was steady at 7.2419 per dollar on Friday.

Sterling touched its highest since mid-December at USD 1.2674.

Later on Friday purchasing managers’ index indicators are released worldwide.

(Reporting by Tom Westbrook; Editing by Jamie Freed)

Trump tariff worries set gold on course for eighth straight weekly gain

Gold prices were little changed on Friday but remained on track for an eighth successive weekly gain, driven by concerns over US President Donald Trump’s tariff plans, which could spark trade wars and stoke inflation.

FUNDAMENTALS

* Spot gold was up 0.1% to USD 2,941.25 an ounce, as of 0018 GMT. Bullion rose about 2% so far this week and scaled an all-time high of USD 2,954.69 on Thursday.

* US gold futures were steady at USD 2,956.60.

* Federal Reserve officials are taking note of what they see as rising inflation risks and the uncertain impact of Trump’s trade, immigration, and other policies.

* “Going forward, I consider it is appropriate to hold the federal funds rate in place for some time, given the balance of risks that we face right now,” Federal Reserve Governor Adriana Kugler said on Thursday.

* Bullion is seen as a safeguard against geopolitical risks and inflation, but higher interest rates dampen the non-yielding asset’s appeal.

* Earlier this week, Trump said he would announce fresh tariffs over the next month or sooner, adding lumber and forest products to previously announced plans to impose duties on imported cars, semiconductors, and pharmaceuticals.

* Since taking office on January 20, Trump has imposed an additional 10% tariff on Chinese imports and a 25% tariff on steel and aluminum.

* Meanwhile, gold exports from Switzerland rose year-on-year in January as supplies to the US soared to the highest in at least 13 years and offset lower deliveries to top consumers China and India, Swiss customs data showed on Thursday.

* Spot silver was steady at USD 32.93 an ounce. Platinum fell 0.2% to USD 976.42, and palladium firmed 0.4% to USD 981.29.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Varun H K)

Investors scout for ‘hidden’ defense plays as rally broadens

MILAN/FRANKFURT – Investors are looking beyond the traditional defense stocks that have emerged as star performers in the European market for cheaper industrial companies poised to benefit from increased military spending in the region.

Shares in Thyssenkrupp, whose operations range from making steel and car parts to trading materials and building fertilizer plants, jumped 20% on Monday, driven by an expected surge in defense budgets that could boost its warship division TKMS, which is due to be spun off this year.

The conglomerate has lost 40% of its value in five years, hurt by a lengthy and painful restructuring of its sprawling operations.

However, its defense assets, which include submarines, frigates, and sensor and mine-hunting technology, are now being seen as a potential catalyst for growth.

BofA Global Research called TKMS a “hidden” defense stock, valuing it at half of Thyssenkrupp’s market capitalization. Analysts at the US investment bank noted that defense businesses are now among the most compelling equity stories in Europe. “We see deep value,” they wrote about TKMS.

The market’s recognition of underpriced defense assets could lead to a surge in share prices, driven by higher valuation multiples and earnings growth tied to rising defense spending.

Analysts also cited bus and truck maker Iveco Group and shipbuilder Fincantieri as beneficiaries if the defense rally broadens beyond pure plays, just as some questions emerge about the sustainability of Europe’s rally.

However, investors will need active stock-picking skills to capitalize on this trend, as these opportunities may lie beyond the main equity benchmarks that passive strategies track.

Thyssenkrupp is a mid-cap stock listed on the MDAX index, after tumbling out of the main DAX index in 2019, following a string of profit warnings and the slump in the share price.

Alberto Conca, chief investment officer at Swiss asset manager ZEST+LFG, believes many industrial companies, including those not directly involved in defense, could benefit indirectly from the military boom.

“This makes a lot of sense,” he said.

Iveco’s shares have rocketed since saying earlier this month it could spin off its IDV defense division this year. IDV posted a 10% operating profit margin last year, the only double-digit result from the firm’s industrial businesses.

Having lagged the broader aerospace and defense index since Russia invaded Ukraine three years ago, both Thyssenkrupp and Iveco are catching up fast. This year they are outperforming, having risen 53% and 68% respectively.

World defence companies trade at 25.8 times expected earnings, versus 18 times three years ago, per LSEG Datastream data. Iveco and Thyssenkrupp both trade around 8 times on the same valuation metric.

(USD 1 = 0.9590 euros)

(Reporting by Danilo Masoni; Editing by Amanda Cooper and Sharon Singleton)

Stagflation-lite could still make policymakers sweat: McGeever

ORLANDO, Florida – Policymakers around the world may not like the word ‘stagflation,’ but they’re going to hear a lot more of it this year if the import tariffs US President Donald Trump is threatening to open up a global trade war.

“I don’t use the word stagflation,” Bank of England Governor Andrew Bailey said earlier this month. “It really doesn’t have a particularly, frankly, precise meaning.”

He is correct about the ambiguity. Stagflation was first coined to describe the painful mix of sustained economic stagnation and industrial-scale inflation that scarred Western economies in the 1970s. But it is now used to characterize almost any instance of both below-trend growth and above-trend inflation – essentially stagflation with a small ‘s.’

Even this more moderate version of the dreaded economic disease can cause serious headaches for policymakers whose blunt tools are designed to either boost growth or dampen inflation – not both at the same time.

And with economists in agreement that stagflation could result from tit-for-tat protectionist trade policies, Bailey won’t be the only policymaker with a furrowed brow this year.

GOING GLOBAL

A mix of economic indicators and policymaker comments on Wednesday put a spotlight on the stagflationary menace.

Minutes from the Federal Reserve’s January 28-29 policy meeting showed that firms are inclined to pass on higher input costs from tariffs to their customers, meaning inflation risks appear skewed to the upside. This came after January’s retail sales shock last week reminded investors that the US consumer is not invincible, even if growth is still holding up well enough.

And things could get a lot worse from here. PIMCO’s Tiffany Wilding estimates that Trump’s proposed tariffs on Mexico, Canada and China alone could raise US inflation by 0.8 percentage point and cut growth by 1.2pp in the first year.

Figures from Britain, meanwhile, showed that inflation last month accelerated more than expected to 3%, well above the BoE’s 2% target. This comes as growth is cooling at best, and flat-lining at worst.

Economists at Morgan Stanley and HSBC recently cut their 2025 UK GDP growth forecast to 0.9% from 1.4%, and the BoE said it expects inflation to peak later this year at 3.7% before receding. Bailey and colleagues are in a tight spot.

And intriguingly, two of the European Central Bank’s top policymakers outlined the two sides of the debate on how much further, if at all, policy should be eased.

ECB board member and vocal hawk Isabel Schnabel argued that a “pause or halt” to the bank’s rate cuts may be approaching, while Italian central bank chief Fabio Panetta argued that growth may be even weaker than feared.

Perhaps the case for the ECB cutting rates to below ‘neutral,’ as many observers had begun to build, isn’t so clear-cut after all.

FLATTENING THE CURVE

These signals chime with Bank of America’s latest global fund manager survey which shows that nearly 60% of respondents believe ‘stagflation’ will best describe the world economy over the next 12 months – the largest percentage in seven months.

BNP Paribas strategists reckon US markets are underpricing stagflation risks. Since Trump’s inauguration a month ago, the S&P 500 has ground out new highs, nominal and real Treasury yields have drifted lower, and the yield curve has gradually flattened.

But if traders and investors – many of whom are already on ‘stagflation watch’ – think growth is stagnating and inflation is not coming down, they will likely act accordingly.

That could mean a selloff in stocks and bonds, leading to heightened currency volatility. Britain, which relies on the ‘kindness of strangers’ to plug its large trade deficit, may be particularly vulnerable among developed economies, even more so emerging markets exposed to FX weakness and imported inflation.

The best advice to investors may be, if ‘flation’ stays high, prepare for ‘stag’.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Andrea Ricci)

Oil rises for third day on US fuel stocks draw, worries about Russia disruptions

NEW YORK – Oil prices settled higher on Thursday, marking a three-day streak of gains, after data showed gasoline and distillate drawdowns in the US, while worries about supply disruptions in Russia also supported prices.

Brent futures settled up 44 cents, or 0.58%, at USD 76.48 a barrel. US West Texas Intermediate crude futures (WTI) for March delivery CLc1 rose 32 cents, or 0.44%, to USD 72.57.

The more actively traded April WTI contract gained 0.35% to USD 72.50 a barrel.

US crude oil stockpiles rose slightly more than expected while fuel inventories fell last week as seasonal maintenance at refineries led to lower processing, the Energy Information Administration said on Thursday.

“The crude build was a bit larger than expected, but there was a modest draw in gasoline and larger draw in distillate, keeping total inventories flat,” said Giovanni Staunovo, an analyst with UBS.

Crude futures extended gains slightly following the report.

Russia and the US have had their first meeting since the start of the Ukraine war, aimed at restoring relations and preparing the ground for ending the conflict.

However, disruptions to the oil supply kept prices elevated.

Russia attacked Ukrainian gas infrastructure and damaged gas production facilities overnight, Ukraine’s Energy Minister German Galushchenko said.

Russia said Caspian Pipeline Consortium oil flows, a major route for crude exports from Kazakhstan, were reduced by 30%-40% on Tuesday after a Ukraine drone attack on a pumping station.

Elsewhere, potential restarts of oil flows from Iraq’s Kurdistan region were offsetting supply risks, analysts at ING said in a note.

Turkey, which hosts the port of Ceyhan that loads Iraqi oil from the Kurdistan region, had not received confirmation from Iraq on the resumption as of Thursday, the country’s energy minister told Reuters.

A resumption of the Iraqi oil flows would add 300,000 barrels of supply per day onto the market, ING analysts said.

Import tariffs announced by US President Donald Trump’s administration could dent oil prices by raising the cost of consumer goods, analysts said, weakening the global economy and reducing fuel demand. Concerns about European and Chinese demand were also helping keep prices in check.

“It is natural to be concerned about the global economic outlook as Donald Trump takes a sledgehammer smashing away at the existing global ‘free-trade structure’ with signals of 25% tariffs on car imports to the US,” said Bjarne Schieldrop, chief commodities analyst at SEB.

(Reporting by Nicole Jao, Enes Tunagur, and Sudarshan Varadhan; Editing by Muralikumar Anantharaman, Varun H K, Subhranshu Sahu, David Evans, Deepa Babington, and Nia Williams)

US companies swap dollar bonds into euros to lower funding costs

US companies with overseas operations are taking advantage of lower rates in euros to slash their debt funding costs and soften the blow of higher interest rates with a hedging strategy that is expected to expand if the Fed continues to pause rate cuts and other central banks do not, bankers and corporate advisers said.

Demand for cross-currency swaps, a hedge where companies exchange loan principal and interest payments from one currency to another, has steadily picked up as interest rates between the United States and other major economies diverged.

“We have seen activity in both new cross-currency swap transactions and restructurings of existing hedges, mostly USD to EUR flows associated with net investment hedging activity,” said John Wahr, head of rates sales in the derivative products group at US Bank.

Generally, companies turn to cross-currency swaps when there is a positive carry and also a shield against volatility that can come from macroeconomic uncertainty over the impact President Donald Trump’s tariffs and policies might have on inflation, interest rates, and the US economy.

Monthly EUR/USD cross-currency swaps increased 7% in January to USD 266 billion, versus the corresponding period in 2024, according to data from Clarus, an ION company that researches derivatives. The bankers and advisers told Reuters they could not name the companies doing such swaps, citing confidentiality reasons.

Within days of taking over, Trump began rapidly implementing his agenda, including tariffs on steel and aluminum imports and reciprocal tariffs, sparking volatility and raising concerns this could be inflationary and further pause an easing US rate cycle. In another example, Trump on Tuesday said he plans to introduce tariffs on autos, pharmaceuticals and semiconductors.

Companies with overseas cash flows or significant investments in foreign operations can see their value fluctuate with changes in the exchange rate between the local currency and the dollar.

The net investment hedge mitigates that volatility because it offsets the changes in the value of those investments brought on by exchange rate gyrations.

By using cross-currency swaps to convert dollar interest payments to euro interest payments, companies can shave nearly 200 basis points off their interest costs, which could run up to millions of dollars, said Jackie Bowie, managing partner and head of EMEA at risk management firm Chatham Financial.

Companies that started using cross-currency swaps last year, began restructuring them at the start of this year because those trades were more profitable as the euro weakened, said Amol Dhargalkar, managing partner at Chatham.

CURRENCY RISK

Companies were then using those profits for a variety of corporate purposes, including paying down debt, he added.

Still, the flow of swaps is tempered as treasurers were sensitive to creating derivative foreign exchange exposures that may heighten the risk of mark-to-market losses if the underlying foreign currencies were to strengthen, said Marc Fratepietro, co-head of global debt capital markets at Deutsche Bank.

If the foreign currency strengthened relative to the dollar, that could also eat into the interest expense savings for companies doing the swaps, said Eric Merlis, co-head of global markets, at Citizens in Boston.

But for companies that have yet to place these trades, it could still present an attractive entry point from both an interest rate differential and currency perspective, said Merlis, who is seeing companies across the board with exposures in the euro, Canadian dollar, and some dollar/Swiss franc take on the hedges.

“There’s always uncertainty about what the Fed is going to do, or what the ECB is going to do. But this uncertainty has provided our clients with an opportunity to hedge against that macro uncertainty,” he added.

The fragility of such trades was revealed somewhat on Wednesday when euro zone government bond yields rose to their highest in more than two weeks as investors focused on potential extra borrowing amid US-Russia talks on Ukraine and comments from a European Central Bank official floating a pause to rate cuts.

(Reporting by Shankar Ramakrishnan and Laura Matthews; Editing by Anna Driver)

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