There is clearly a change in tone in the US Dollar in the air. History suggests the early stages of US recessions are typically associated with USD weakness, economists at Scotiabank report.

CHF and JPY have tended to benefit in periods of US recessions

“On average (looking at the last five US recessions of 1981, 1990, 2001, 2007 and 2020) the USD declines a little more than 2% in the first three months of US recessions, with losses contained to 0.5% on average over a six-month view. This suggests to us that mild USD rebounds versus G3 currencies remain a sell in the next few months.”

“The USD’s role as a safe-haven has evolved over time and its linkage to risk appetite has strengthened in the post-Great Financial Crisis environment, our long-run correlation studies indicate. That may limit pressure on the exchange rate in the coming recession to some extent. But history suggests that the more ‘usual’ havens– that is to say, strong external account currencies, such as the CHF and JPY – have tended to benefit in periods of US recessions.”

“A situation where US yields decline and commodity prices ease, both developments which are conceivable under a recession scenario, should be favourable for the JPY (as these conditions would imply less onerous yield spreads and an improvement in Japan’s weak terms of trade) even considering Japan’s weakened trade balance (and recently diminished haven status).”