The US dollar fell against major currencies this week as investors assessed the economic risks of a sharp selloff in artificial intelligence stocks. Growing concerns about AI investment returns have raised questions about future US economic growth and interest rates. Meanwhile, traditional safe-haven currencies gained ground as financial markets reconsidered their exposure to the technology sector.
AI selloff puts pressure on dollar
The dollar recorded its first weekly decline in more than a month against the euro and Japanese yen. Reuters reported on October 16 that the dollar index was heading for a weekly loss, despite stronger-than-expected US inflation figures. Technology stocks suffered heavy selling pressure as investors questioned whether data centre operators could generate sufficient profits to repay their debts. Concerns spread to credit markets, highlighting the financial risks of massive AI infrastructure investments.
Macquarie strategist Thierry Wizman warned that reduced AI spending could weaken US economic growth and push Treasury yields lower through 2027. Such developments would potentially reduce demand for the dollar. The Swiss franc emerged as a major beneficiary, supported by its safe-haven status and expectations that Swiss interest rates would remain at zero.
Interest rates remain in focus
Federal Reserve policy continues to influence currency markets following cautious comments from central bank officials. Traders assigned an 87% probability to interest rates remaining unchanged at the October meeting, despite recent inflation pressures. ING strategist Chris Turner suggested that further dollar weakness would require a more substantial decline in short-term interest rates.
European markets face separate challenges, particularly fiscal uncertainty in France, which continues to weigh on euro sentiment. Japan’s yen gained modestly after four consecutive weeks of losses. Bank of Japan Governor Kazuo Ueda reiterated concerns about underlying inflation exceeding the central bank’s 2% target.
