US Dollar Currency heads for first weekly fall in five weeks as AI concerns mount

The US dollar was heading for its first weekly decline in five weeks on Friday, helping the euro recover from a 17-month low as concerns over artificial intelligence investment and falling US bond yields weighed on the currency.

AI-related stocks have fallen sharply this week, with the sell-off spreading to parts of the credit market. Investors who had poured money into companies across the AI supply chain are increasingly concerned that data centre operators may struggle to generate enough profits to repay their debts.

The uncertainty has encouraged investors to move towards US Treasury bonds, pushing yields lower and weakening demand for the dollar. The currency had benefited in recent months from optimism that the AI boom would support economic growth in the United States.

In Asian trading, the dollar slipped 0.2% against the Japanese yen to 158.13 yen and fell around 0.1% against the euro to $1.1210. The dollar index, which measures the currency against six major peers, stood at 102.07 and was on course for a weekly decline of 0.14%.

The euro’s recovery came after five consecutive weeks of losses, during which it had fallen more than 3% against the dollar. Concerns about France’s growing public debt and the prospect of a winter energy squeeze had weighed on the single currency.

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Brent Donnelly, president of Spectra Markets, said a substantial reassessment of spending on AI infrastructure would likely put further downward pressure on the dollar. He argued that the US currency could weaken if investors began to anticipate that the AI investment boom had peaked.

The British pound was steady at $1.3270 but remained on course for a weekly gain of 0.3%. The currency received support from data showing that the UK economy unexpectedly grew by 0.1% in August.

The New Zealand dollar was also heading for a modest weekly gain of 0.1%, trading at $0.5621. The Australian dollar remained broadly unchanged at $0.6921 but was on course to lose 0.8% against the US currency over the week.

The Australian dollar came under pressure after a weaker-than-expected employment report on Thursday led traders to scale back expectations of another interest rate increase.

Attention is now turning to Federal Reserve Chair Kevin Warsh, who is scheduled to speak in Bangkok on Friday at the International Monetary Fund’s annual meeting. His remarks could influence market expectations ahead of the US central bank’s next policy decision, due in less than two weeks.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, said Warsh’s comments could affect expectations for the October meeting, particularly given his reservations about forward guidance.

Traders were pricing in a 72% probability that the Federal Reserve would leave interest rates unchanged later this month, up from 53% a month earlier, according to the CME FedWatch tool.

Expectations of an interest rate increase had risen following a hotter-than-expected US consumer price index report earlier in the week. However, those bets eased after Federal Reserve officials indicated that the central bank could wait for more information before deciding on its next move.

Markets will continue to monitor AI investment trends, Treasury yields and signals from the Federal Reserve for clues about the dollar’s direction in the coming sessions.