EUR/USD rallied on Wednesday, ignoring usually reliable signals from yield spreads pointing in the opposite direction, which suggested that the recent selling of both U.S. stocks and bonds could fuel a larger move out of the dollar that could benefit the euro. Rising tariff tensions, particularly between the U.S. and China, appear to have dented the dollar's safe-haven status.

USD/CNH rallied towards 7.4300 on the U.S. tariff news then turned lower on the back of broad-based U.S. dollar selling.

The dollar was sold despite sharp gains in U.S. Treasury yields , which is usually supportive.

Sales of the dollar and U.S. Treasuries on top of recent U.S. stock market losses support the view that that capital may be fleeing the U.S., which could lead investors to rethink the U.S. safe-haven status and potentially lead to questions about the U.S. currency's reserve status.

Gains in gold reinforced the view that the dollar is being shunned.

So, too, did EUR/USD's ability to rally in the face of a sharp widening of German-U.S. 2-year yield spreads which fell through key support near -195bps, increasing the dollar's yield advantage over the euro to -208bps. EUR/USD is usually correlated with that spread, but that link may be breaking down.

If the deterioration in confidence in U.S. assets intensifies, EUR/USD could rally above the 2024 yearly high, particularly if the euro becomes more attractive to investors.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)