Euro gets much-needed reprieve as AI wobbles rock the dollar

The dollar experienced its first weekly decline in five weeks on Friday, causing the euro to rise from a 17-month low. This shift occurred due to wobbles in AI investment and a drop in US yields, which put the brakes on recent gains. AI stocks suffered significant losses this week, leading to stress in the credit market as investors who had poured money into AI-related bets worried about the profitability of data center operators.

Consequently, there was a flight to Treasuries, with the US 10-year yield reaching its largest weekly drop in over a year, and a decline in the dollar, which had been bolstered by the AI boom. The dollar dropped 0.2% this week to 158.13 yen and fell about 0.1% to $1.1210 per euro. This reprieve was welcome for the euro, which had fallen more than 3% against the dollar over the previous five weeks due to concerns about France's growing debt and an energy shortage during winter.

The reaction to a serious reevaluation of AI capex (capital expenditure) suggests a bearish outlook for the dollar. The US economy is heavily reliant on the AI trade, likened to a one-legged stool. The dollar index, which gauges the US currency against six major currencies, saw a 0.14% drop in the week, while the British pound edged up 0.3% on data indicating the British economy grew by 0.1% in August.

The New Zealand dollar was expected to gain slightly, while the Australian dollar remained steady and slightly weakened, following a weaker-than-expected jobs report. Federal Reserve Chair Kevin Warsh was set to speak in Bangkok on Friday, potentially providing insight into the Federal Reserve's decision at their upcoming meeting.