The dollar fell on October 16 and was on track for its first weekly loss in more than a month against the euro and the yen. The dollar index slipped 0.17% to 101.87, leaving it set for a 0.35% weekly drop as traders pared expectations for a Federal Reserve rate hike later this month.
Matt Weller, global head of market research at StoneX in Michigan, said: "What I found most interesting today and more broadly this week, is how closely the dollar has been tied to the AI trade". He added: "Usually if we see a sell off in tech stocks you would expect the greenback to get a safe-haven bid. We are seeing an element of that into bonds, but the dollar is actually falling."
Federal Reserve rate bets
Markets assign an 83% probability to the Federal Reserve keeping rates unchanged later this month, up from 49% a month earlier. That shift followed hotter-than-expected consumer and producer price readings earlier this week and comments from Fed officials signaling no urgency to tighten policy further, which helped stabilize Treasury yields.
John Velis, Americas macro strategist at BNY in New York, said: "I don't think there is enough support in (the) committee, particularly from the governors, for a rate hike in October. It still leaves December an unanswered question and there is a lot to happen between now and then". His reading leaves October priced for no change while keeping December open.
Euro, yen and franc
The euro was last up 0.08% at $1.1227 and on track for a 0.23% weekly gain. Sterling rose 0.31% to $1.3314, while the dollar fell 0.25% against the Swiss franc to 0.8246 and was down 0.67% for the week. The franc has gained more than 1.4% in the last two sessions, and the dollar slipped 0.08% against the yen to 158.11.
The yen was on track for a 0.13% weekly rise after Kazuo Ueda reiterated the risks of underlying inflation overshooting the central bank's 2% target. That left the dollar weaker across Europe and Japan at the same time that stress from AI stocks was spreading into parts of the credit market.
Bangkok Fed meeting
Kevin Warsh said he does not "prejudge meetings" at the IMF-World Bank annual meetings in Bangkok on Friday, leaving the market with fewer signals on the path ahead. For now, the pricing points to no change later this month and a much tighter debate around December, when traders still do not have a clear answer.
