The US Dollar fell on Friday and was heading for its first weekly decline in five weeks, helping the Euro recover from a 17-month low as concerns over AI investment and falling US bond yields curbed the greenback’s recent rally.
AI stocks have slumped this week, with the turmoil spilling into parts of the credit market. Investors who have piled into companies across the AI supply chain are increasingly concerned that data centre operators may struggle to become profitable quickly enough to service their debt.
The uncertainty has prompted investors to seek the relative safety of US Treasuries, putting the 10-year Treasury yield on course for its biggest weekly drop in more than a year. At the same time, the Dollar has come under pressure after benefiting partly from the economic boost generated by the AI boom.
The Dollar remained under pressure during Asian trading on Friday, slipping to 157.85 Yen and putting it on track for a weekly loss of around 0.3%. It has declined by a similar margin against the Euro, which traded at $1.1226.
The pullback offers some relief for the Euro, which had fallen more than 3% against the Dollar over the previous five weeks amid concerns over France’s mounting debt burden and the prospect of an energy squeeze this winter, Reuters reports.
With investors heavily positioned for a stronger Dollar, further turbulence in AI markets could trigger a reversal of those bets, putting additional downward pressure on the US currency.
The Dollar index, which tracks the US currency against a basket of six major currencies, stood at 101.89 and was on course to fall 0.2% over the week.
Sterling edged up to $1.3303, putting it on track for a 0.5% weekly gain after data showed the UK economy unexpectedly expanded by 0.1% in August. The New Zealand Dollar rose 0.5% to $0.5655, bringing its weekly advance to 0.7%.
The Australian Dollar also edged higher to $0.6946 but was an exception among its peers, heading for a 0.5% weekly decline against the greenback. A weaker-than-expected jobs report on Thursday prompted markets to scale back expectations of another interest rate hike by the Reserve Bank of Australia.
Federal Reserve Chair Kevin Warsh offered little insight into the central bank’s next policy move during the International Monetary Fund’s annual meeting in Bangkok, saying only that global developments had broadly unfolded as expected since the Fed’s September meeting.
Markets are increasingly betting that the Fed will leave interest rates unchanged later this month. According to CME’s FedWatch tool, traders now see a 72% probability of rates remaining on hold, up from 53% a month ago.