Dollar loses momentum as risk-off sentiment takes hold

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Dollar loses momentum as risk-off sentiment takes hold

The US Dollar initially strengthened after September CPI came in hotter than expected, with annual inflation rising to 3.7% from 3.4% in August, versus expectations of 3.6%. Core inflation also exceeded forecasts. However, the Dollar has since lost momentum, with the DXY moving lower and showing signs of a potential correction.

Markets are broadly under pressure. The S&P 500 and Nasdaq are weakening, while blue-chip stocks remain relatively steady for now. The ongoing AI sell-off is weighing on sentiment, and AUDUSD is also moving lower, reflecting reduced risk appetite. Gold and Silver are under pressure as investors reassess the inflation outlook and the potential impact of higher energy prices.

Market talk

The latest market reaction highlights the growing tension between persistent inflation and concerns about economic growth. Higher fuel prices linked to the conflict with Iran are adding to inflationary pressure, but the broader economic impact could increasingly weigh on consumers and businesses. This makes the Federal Reserve's next steps more difficult to predict, as persistent inflation argues for tighter policy while weakening sentiment raises concerns about growth.

Another source of market stress is the growing concern over debt financing in the AI sector. Investors are questioning whether the enormous investments in data centres and computing infrastructure will generate sufficient returns, particularly if financing costs remain high. Credit concerns surrounding heavily indebted AI infrastructure companies have contributed to the broader sell-off, while demand for safe-haven government bonds has increased. This suggests that the current risk-off mood extends beyond inflation alone.

Tendencies in the markets

• Equities weak, USD lower, crypto positive, oil positive, metals positive, JPY stronger.