Greenback falls as Fed hike bets fade, AI jitters linger

The US dollar slipped on Friday, Sept 16, potentially marking its first weekly decline in over a month versus the euro and yen, as expectations for a Federal Reserve rate increase waned and AI-driven market jitters persisted. Initial consumer and producer price data that exceeded forecasts sparked market turbulence early in the week, but comments from Fed officials indicating a lack of urgency in tightening monetary policy helped stabilize Treasury yields and diminished the dollar's appeal.

AI stocks plummeted last week, and the ripple effects extended to certain segments of the credit market as investors, heavily invested in supply chain bets, grew anxious about data center operators' profitability. Matt Weller, global head of market research at StoneX in Michigan, noted the dollar's close correlation with AI trade.

While a tech stock sell-off typically prompts a safe-haven dollar move, this week's opposite trend emerged. The dollar index, which gauges the dollar against six major currencies, dropped 0.17 percent to 101.87, signaling a 0.35 percent weekly decline last week. The British pound and Swiss franc led gains against the dollar last week, with the Swiss franc bolstered by safe-haven demand and forecasts that even with lower interest rates, Switzerland is unlikely to cut rates below zero.

The pound rose 0.31 percent to $1.3314 and gained 0.63 percent last week, whereas the dollar fell 0.25 percent against the Swiss franc to 0.8246, marking a 0.67 percent weekly decline. Fed Chair Kevin Warsh provided no hints about future rate decisions at the IMF-World Bank annual meetings in Bangkok, stating he does not "prejudge meetings."

He emphasized that there is insufficient support within the committee, particularly from governors, for a rate hike in October, leaving December uncertain. Analyst John Velis from BNY in New York remarked that while the likelihood of a rate hike in October has risen to 83 percent from 49 percent a month earlier, significant events remain ahead.

In France, fiscal risks resurfaced following a surge in the French debt risk premium at the start of October. The euro climbed 0.08 percent to $1.1227, after rising 0.56 percent on Thursday, its largest single-day surge in two months, indicating a 0.23 percent weekly gain. Investors anticipate US President Donald Trump to avoid escalating conflicts in the Middle East or Ukraine, as a wider conflict could damage his reputation ahead of midterm elections and exacerbate inflation.

Against the yen, the dollar slipped 0.08 percent to 158.11, placing the Japanese currency on track for a 0.13 percent weekly rise last week after a four-week losing streak, driven by the Iran conflict. Higher oil prices have recently strengthened the dollar while adversely impacting currencies of energy-importing nations, including those tied to the euro and yen.