Dollar slides as AI worries push investors into bonds

The US dollar slipped slightly on Friday as investors moved into bonds after a fresh wave of selling in artificial intelligence stocks. The move triggered a flight to safety that pushed Treasury yields lower, creating a rare dynamic where the currency weakened alongside falling yields.

In Tokyo, the yen remained steady at around 157.815 per dollar ahead of the Bank of Japan's policy meeting. The central bank is expected to hold interest rates at 1.25% despite high inflation. Markets are pricing in an 80% chance that the BOJ will raise rates in December.

The yen is on track for a 0.2% decline against the dollar this month. This decision marks the end of a busy week for global central banks. The European Central Bank, the US Federal Reserve, and the Reserve Bank of New Zealand all left their rates unchanged this week.

Khoon Goh, head of Asia research at ANZ, described the current situation as a temporary pause. He stated that the global tightening cycle is still continuing and will remain a driver for foreign exchange markets. Goh noted that the major question for 2027 is whether inflation stays elevated, which could lead to even more rate hikes.

In Europe, the euro was flat at $1.1185 against the dollar. It had briefly dipped to its lowest point since May 2025 in the previous session. Sterling gained 0.1% to $1.3390. The Australian dollar was little changed at $0.7030, while the New Zealand dollar weakened slightly to $0.5626.

The dollar index, which measures the US currency against a basket of peers, fell slightly to 101.77. It is set for a 0.3% gain this month, marking a second straight monthly rise. The yield on the benchmark US 10-year Treasury note was last at 4.8958%, and the 30-year bond yield fell to 5.2623%. Both were at their lowest levels in over a month.

Sim Moh Siong, an FX strategist at OCBC, noted that the market reaction differed from typical energy-driven risk-off episodes. He explained that US-centric AI concerns were accompanied by lower Treasury yields and a subdued dollar. Oil prices remained elevated, with Brent crude futures on track for an 11.5% gain in their fourth straight month of increases.