Dollar set for strongest week since November
The dollar index was at 97.961, hovering near the highest level since January 23
The U.S. dollar lingered near a two-week high on Friday, poised for its strongest weekly performance since November as a rout in stocks driven by AI-spending concerns rattled investors, while the yen firmed ahead of a national election on Sunday.
The dollar has strengthened since President Donald Trump nominated Kevin Warsh as the next central bank Chair last week as markets expect him not to push a lot for rate cuts, easing some worries about central bank independence.
The sharp selloff in technology stocks this week comes as investors fret about the massive spending on artificial intelligence as well as the cascading impact of fast-advancing AI tools that could upend various sectors.
The risk aversion has helped the dollar despite U.S. Treasury yields declining after economic data pointed to a weaker-than-expected jobs market ahead of next week’s payrolls report for January.
The fact that we are getting such big moves is a sign the market is positioned the same way on long and short trades be it stocks, commodities, crypto and FX, said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities.
The short USD position is a consensus trade and consensus trades are getting unwound as sentiment shifts from risk on to risk off, he added.
The dollar index was at 97.961, hovering near the highest level since January 23. The index is set for a 1% increase for the week, its sharpest rise since the middle of November.
ING economists said an apparent slowdown in hiring suggests the central bank may have acted a little prematurely in downplaying the risks to the jobs aspect of its mandate at its January policy meeting.
Major downward revisions to payrolls next week would add to the pressure to eventually resume rate cuts, they said in a note. Traders are still pricing in two cuts for the year but the possibility of a move in June has inched up.
The euro was at $1.1784 after the European Central Bank left interest rates on hold as expected on Thursday and played down the impact of dollar moves on its future decisions.
Sterling was nursing steep losses and stood at $1.3520 after dropping nearly 1% in the previous session.