FX Daily: AI jitters have damaged USD safe haven appeal
At a Glance
The desk observes a weakening of the USD's safe-haven status amid rising uncertainties related to AI, as depicted by sharp moves in front-end USD rates. Per the full note , fears stemming from AI-driven market instability have driven a significant drop of 25 basis points in the USD two-year OIS/SOFR since October 14, illustrating a market reaction primarily based on sentiment rather than macroeconomic fundamentals. Meanwhile, further instability in equity markets, particularly tech, may exacerbate the situation, suggesting a more cautious outlook towards USD performance against other G10 currencies. Currently, the consensus for EUR/USD is at 1.1700 with a range of 1.1200–1.2000, indicating traders are pricing in a degree of stabilization in tech stocks subsequently affecting the dollar's strength.
Key Takeaways
- 01AI-related market jitters are diminishing the USD's safe-haven status.
- 02Significant decline of 25bp in USD two-year OIS/SOFR reflects shifting sentiment.
- 03Current EUR/USD consensus stands at 1.1700, amidst concerns for further volatility.
- 04Stability in tech stocks may influence future USD performance.
Full Analysis
What the desk is arguing
The desk argues that rising AI-related uncertainties are undermining the USD's appeal as a safe haven, especially in light of recent equity market shifts. Per the full note , the dollar has shown signs of lagging behind other G10 currencies as sentiment surrounding tech stocks evolves.
The market's response has been stark: a notable 25 basis point decline in USD two-year OIS/SOFR rates following the CPI release on October 14 illustrates a significant shift influenced more by stock market dynamics than by traditional economic indicators. This suggests that if AI fears lead to stock market volatility, the USD may not act as a refuge as previously expected.
Where it sits in our coverage
Our current consensus for EUR/USD is 1.1700, with a range between 1.1200 and 1.2000, indicating potential for some volatility given external factors. Key firm targets include: - rabobank: Mar26 1.1759 - socgen: Mar26 1.1700 - cibc: Mar26 1.1866
In light of this, the desk's outlook propositions lean toward a cautious stance, aligning closely with rabobank and socgen but sitting slightly at the higher end compared to tmgm with a Mar26 target of 1.1447.
How other firms see it
Firms like rbc and hsbc envision slightly more resilient targets for the EUR, reflecting a potential for further upward movement against the USD. Conversely, firms such as tmgm and abnamro express caution with lower expectations going forward.
Appreciation of the EUR/USD trajectory may be impacted by the ECB's decisions and U.S. fiscal policies, with potential implications for policy decisions from both the Fed and the ECB in the wake of ongoing market volatility. A closer watch on these factors is advisable.
Market Implications
Traders should closely monitor equity market movements, particularly within the tech sector, as any stabilization could bolster the USD. Key levels to watch include thresholds around 1.1700 for EUR/USD, which would indicate a shift in USD strength.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
TMGM | Neutral | 1.1450 |
MUFG | Neutral | 1.1200 |
From the original
Articles FX Daily: AI jitters have damaged USD safe haven appeal Published 07:56 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download After big moves in front-end USD rates, the dollar has shown it could be a laggard in further stock market instability
Related speeches
4 itemsFX Daily: Markets preview the AI correction
The desk believes the recent reversal in dollar strength reflects a potential market correction linked to vulnerabilities in the AI sector. Per the full note from ing-think, after strong CPI data led to a spike in short-dated US yields, investor focus quickly shifted to AI-related corporate debt issues, particularly in firms like Coreweave. This shift suggests that the Federal Reserve's tightening trajectory may need reassessment, impacting currency dynamics, notably the USD's strength. The Swiss franc's outperformance hints at a broader risk-off posture, setting the stage for potential shifts in other currency pairs, including EUR/USD and GBP/USD.
FX Daily: Dollar has lost its safe-haven crown
The desk interprets the recent shift in safe-haven demand as a significant blow to the dollar's traditional status, with the yen and Swiss franc gaining favor amidst heightened global risk aversion, particularly concerning AI-related concerns and rising oil prices. Per the full note by ING, the dollar's vulnerability is exemplified by its performance during last session's risk sell-off, as equities declined and bond yields fell. Currently, consensus sentiment indicates a stronger outlook for the euro, as shown in recent forecasts, positioning this trend amid a background of diminished safe-haven appeal for USD.