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

The US dollar experienced a notable decline on Friday, marking its first weekly drop in five weeks, which consequently boosted the value of the euro. The decline in the dollar was attributed to wobbles in AI investment and a drop in US yields, which curbed recent gains. AI stocks faced a significant downturn this week, causing investors who had been heavily invested in the AI supply chain to worry about data center operators' profitability, leading to a flight to US Treasuries.

As a result, the US 10-year yield saw its largest weekly drop in over a year, while the dollar, propelled by the AI boom, faced selling pressure. Over the past five weeks, the dollar had fallen more than 3% against the euro due to concerns over France's growing debt and an energy shortage during winter. Spectra Markets president Brent Donnelly noted that a serious reassessment of the AI capital expenditure boom would have a decidedly bearish effect on the dollar.

The dollar index, which gauges the US currency against six major peers, dropped by 0.14% during the week, while the British pound showed a weekly gain of 0.3%, supported by unexpectedly strong British economic growth in August. The New Zealand and Australian dollars also showed slight gains and losses against the dollar, respectively.

Fed Chair Kevin Warsh's upcoming speech in Bangkok provided traders with a final opportunity to influence market expectations for the Federal Reserve's decision later this month. Although traders priced in a 72% chance of the Federal Reserve maintaining interest rates at the meeting, the likelihood of a rate hike rose after a more robust-than-expected Consumer Price Index report.

However, bets shifted after Fed officials indicated the central bank might wait for additional clarity before making a decision.