Dollar Weekly Loss: Fed Hike Bets Fade as AI Jitters Hit

The dollar weekly loss trend took hold Friday as the greenback slipped against the euro and the yen, putting it on track for its first weekly decline in more than a month. The slide reflects fading expectations for a Federal Reserve rate hike and lingering anxiety about an AI-driven selloff spreading through equities and credit markets.

Fading Bets on a Fed Hike

Hotter-than-expected consumer and producer price readings initially rattled markets this week, but comments from Fed officials signaling no urgency to tighten policy helped stabilize Treasury yields and eroded support for the dollar. Markets now assign an 83% probability to the Fed keeping rates unchanged later this month, up from 49% a month earlier, according to the CME FedWatch Tool. At the IMF-World Bank meetings in Bangkok on Friday, Fed Chair Kevin Warsh offered no clues about future moves, saying he does not “prejudge meetings.”

The AI Trade Drags the Dollar

AI stocks fell sharply this week, and the stress spread to parts of the credit market as investors crowded into the supply chain worry that data center operators may not turn profitable in time to pay their debts. “How closely the dollar has been tied to the AI trade” stood out this week, said Matt Weller of StoneX, noting that the usual safe-haven bid went into bonds instead of the dollar. The dollar index fell 0.17% to 101.87, set for a 0.35% weekly drop.

Euro and Yen Rebound

The euro climbed 0.08% to $1.1227 after its biggest daily rise in two months on Thursday, putting it on track for a 0.23% weekly gain. Against the yen, the dollar slipped 0.08% to 158.11, leaving the Japanese currency up 0.13% on the week after four straight weekly losses. The pound and the Swiss franc also gained, with sterling up 0.31% to $1.3314. Investors expect President Trump to avoid any escalation in the Middle East or Ukraine that could fuel inflation ahead of the midterms.

Source: The Economic Times