Tim Riddell, senior market strategist at Westpac, suggests that the US yield curve inversion has heightened markets’ angst over US recession risks.

“Bloomberg and NY Fed (1yr ahead) recession indices, which both incorporate yield curves, show the sharp rise in those risks. Though there were pockets when individual indices rose without a recession, this was rarely the case when both indices rose. The 30-31 July FOMC minutes did not show any urgency or deepening concern though there was a notable increase in divergent views and desire to maintain flexibility. The iteration of the mid-cycle nature of their easing, despite increased external concerns, may keep curve inversion in play and therefore the market’s sense of potential recession. Further yield curve concerns may be a feature of the Kansas Fed Symposium. Trump’s recent comments on unfavourably low/negative rates overseas could lead to further trade tariff tactics being deployed. The combination of such events could continue to favour USD overall even if there might be a rush towards safe haven currencies.”