By Ankur Banerjee
SINGAPORE, Feb 6 (Reuters) – 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 Federal Reserve 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 sliding after economic data pointed to a weaker-than-expected jobs market ahead of next week’s highly anticipated payrolls report for January. [US/]
“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.”
The dollar index, which measures the U.S. currency against six other units, was at 97.961, hovering near the highest since January 23. The index is set for a 1% increase for the week, its steepest rise since the middle of November.
ING economists said an apparent slowdown in hiring suggests the Fed 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.
YEN FINDS FOOTING AHEAD OF ELECTION
The yen strengthened to 156.74 ahead of a national election over the weekend where a victory for Prime Minister Sanae Takaichi could be on the cards.
The vote has investors on edge because fiscal worries have sparked a stomach-churning selloff in the currency and bond markets, and a further leg lower would likely reverberate globally.
“An outsized victory will reduce near-term constraints on Takaichi’s fiscal policy goals including reducing the consumption tax,” said Samara Hammoud, a currency strategist at CBA.
“Importantly, it still remains unclear how Takaichi plans to pay for expansionary fiscal policy. Renewed concerns about Japan’s burgeoning government debt will weigh on Japanese government bonds and the JPY.”
The yen has languished at a near 18-month low against the dollar, prompting Japanese policymakers to repeatedly threaten action – code for intervention in markets – to defend the frail currency.
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 sliding nearly 1% in the previous session.
The Bank of England kept interest rates on hold on Thursday, but only after an unexpectedly narrow 5-4 vote, and said borrowing costs are likely to fall if an expected drop soon in inflation is sustained.
In the crypto market, bitcoin was 1.5% firmer at $64,158 in choppy trading. It had earlier hit the lowest since October 2024 at $60,017 and was set for a 16% decline for the week, the steepest drop since November 2022.
(Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong)
Comments