Dollar Extends Decline

The US dollar index fell below 102 on Friday, extending losses from the previous session and underperforming other safe-haven assets such as government bonds and precious metals following the recent selloff in technology and artificial intelligence stocks. Markets are increasingly factoring in a potential slowdown in the AI capital expenditure boom, which has been a key driver of the US economy and financial markets. Meanwhile, investors continued to assess the Federal Reserve’s monetary policy outlook, as stronger-than-expected US economic data reinforced expectations of further interest rate hikes. Markets are currently pricing in approximately a 72% probability that the Fed will keep rates unchanged this month, while the likelihood of a December rate hike has risen to 92%. Cleveland Fed President Beth Hammack warned that the central bank might need to raise interest rates more aggressively if public inflation expectations deteriorate significantly.

The US dollar fell to 102 on Thursday, retreating from an 18-month high as falling Treasury yields weighed on the currency and Federal Reserve officials tempered expectations of an imminent rate increase. Recent economic figures offered little relief on inflation, with US producer prices rising at their fastest pace in more than four years, strengthening bets on tighter monetary policy. However, comments from Fed Vice Chair for Supervision Michelle Bowman and San Francisco Fed President Mary Daly suggested policymakers could wait for additional evidence before deciding on rates at their October 27–28 meeting. Meanwhile, a risk-averse mood supported demand for Treasuries as investors grew concerned about the debt exposure of artificial intelligence companies. Market participants are now looking to further comments from Fed Chair Kevin Warsh for clues on the policy outlook before the central bank’s communications blackout begins on Saturday.

The US dollar index slipped to around 102 on Thursday, retreating from 18-month highs as investors continued to evaluate the Federal Reserve’s monetary policy outlook following stronger-than-expected inflation data. Figures released Wednesday showed that annual headline inflation accelerated to 3.7% in September, surpassing forecasts of 3.6%, while core inflation edged up to 2.6%, above expectations of 2.5%. Chicago Fed's Austan Goolsbee described the figures as “discouraging” and cautioned that the rapid expansion of AI infrastructure could also be overheating the economy. However, some policymakers continued to favor a cautious approach to further rate increases, with markets pricing in roughly a 73% probability that the Fed will keep interest rates unchanged this month. Investors are now awaiting further remarks from Fed Chair Kevin Warsh ahead of the central bank’s media blackout, which begins on Saturday. The dollar weakened the most against the euro, sterling and kiwi.