Dollar 'vulnerable' to 'AI wobbles' if sentiment stabilises

Matthew Ryan, CFA Ebury

The Dollar rose against most major currencies yesterday, with the notable exception of the yen.

The moves over the past 24 hours or so hint at a distinction worth watching: a contained wobble in AI-related stocks leaves the dollar vulnerable, whereas a broader equity sell-off, even one sparked by the AI trade, and the greenback retains its standing as among the world’s most favoured safe-haven currencies.

With the underlying investment theme and earnings momentum still intact, we remain optimistic that these AI wobbles will prove temporary rather than a lasting drag on equity markets. If sentiment stabilises, as we expect, the dollar could correct lower.

Focus this afternoon turns to the preliminary read of the October PMIs. Economists are bracing for a mild easing in US business activity, albeit from solidly expansionary levels. We will also be soon turning out attention to next week’s Fed meeting.

There will be no change in rates, though we expect Warsh to strike a hawkish enough note to keep a December hike firmly on the table.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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