In his latest warning to North Korea, US President Donald Trump said on Friday military solutions were "fully in place" and referred to American weapons as being "locked and loaded" should the nuclear-armed nation act "unwisely".
Gold prices continued to climb on Friday, as geopolitical tensions between the US and North Korea kept safe-haven demand elevated while data showing July inflation undershot expectations, lessened the prospect of a rate hike this year.
Equity markets had traded with a soft tone in Europe and there was a sharp increase in selling pressure in NY with the S&P 500 index declining by close to 1.0%.
THE QUOTE: "Inflation - or lack of -- has been an ongoing problem for the central bank and some policy makers have voiced concerns about this in recent months as they consider whether to raise interest rates again this year", said Craig Erlam, senior market analyst at OANDA.
But although US equities on Wednesday managed to close only slightly down even after Trump's warning that "fire and fury" would rain on North Korea, on Thursday the chickens came home to roost on Wall Street. Shares of Macy's lost 10% and Kohl's fell 5.8%.
With Japanese markets closed for a public holiday, Hong Kong led the downward charge in Asia-Pacific as the Hang Seng lost more than two percent. The Russell 2000 index of smaller-company stocks gave up 8 points, or 0.6 percent, to 1,401.
Cracks are showing in what has been a virtually non-stop USA equity rally after a rapid escalation of tension between North Korea and the United States this week.
"Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.
NRATV Host Appears to Joke North Korea Should Bomb Sacramento
Internet users were quick to jump on the cavalier comment as a recommendation that North Korea try to hit a city on the US mainland.
Germany's DAX Index fell 0.6%, the UK's FTSE 100 Index retreated 1.2% and France's CAC 40 Index slid 1.4%.
The Swiss franc and Japanese yen are often sought in times of geopolitical tension or global financial stress, partly because both countries have big current account surpluses. With the upward move, the Nasdaq and the S&P 500 rebounded after ending Thursday's trading at their lowest closing levels in a month.
"More likely than anything else, the price action was a function of an overextended USA equity market that has been in need for a healthy correction off record highs", LMAX Exchange analysts said in a morning note.
The dollar was further weighed down on Friday by the soft USA inflation data.
The dollar index fell 0.32 per cent, with the euro up 0.42 per cent to US$1.1819.
But losses soon resumed, with Tokyo edging down as the Nikkei again came under pressure from the strength of the safe-haven yen, which hit eight-week highs Wednesday against the dollar. "There are four more (inflation) prints between now and the December FOMC meeting and we expect the Fed to remain data-dependent, if a touch more cautious", TD Securities said in a note.
Gold, another classic safe haven asset, was trading at around $1,285 per ounce, up more than two percent this week and near a nine-week high. Its weekly gain of 2.6 per cent is the largest since June 2016.
Later in the session dollar traders will be busy monitoring producer prices in the United States, ahead of the key inflation figure tomorrow. Brent crude was up 80 cents at $53.50 a barrel and United States crude was up 60 cents and back up to $50.