A message from the violent swings in stock markets over the past week: The fallout from an artificial-intelligence bust wouldn't stop at the U.S.'s shores.
Recent turbulence in stock markets has underscored the interconnectedness of global economies as a potential AI-driven slowdown in U.S. capital expenditures could have widespread repercussions, particularly for Asian economies heavily dependent on technology exports. This situation is particularly acute given the increasing reliance of these markets on rapid data-center expansions linked to U.S. firms. The unfolding risks suggest a bearish shift may be needed for currencies like the yen, while the USD gains support as the market recalibrates its expectations in the wake of these developments.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The concerns raised in the WSJ piece about AI capex impacting Asian exporters align more closely with our mid-range target, indicating that the potential slowdown could strengthen the USD against its peers.
How firms align
JPMorgan's stance supports a more bullish outlook for the USD, targeting 1.10, reflecting broader concerns about Japanese economic sensitivity to U.S. trends, found in our internal reports. Conversely, BofA maintains a bearish view at 1.04, suggesting a fundamental disconnect given the current global landscape impacted by AI-related developments.
What the data shows
Recent forecasts have highlighted a trend of potential headwinds for Asian currencies driven by shifts in tech expenditures. This aligns with our expectations of a stronger USD amid geopolitical risks influencing market volatility, as discussed in /research/ai-capex-impacts.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01USD poised to strengthen as Asian tech export vulnerabilities emerge.
- 02Expect increased volatility in JPY and AUD/NZD pairs.
- 03Watch for risk-on/risk-off sentiment shifts, particularly around tech earnings.
- 04AI capex concerns could shift positioning notably by Q2.
Market implications
Traders should focus on critical support levels for the yen around 140.00, monitoring tech earnings reports as a catalyst for potential USD strength. Our consensus remains at 1.075, with volatility expected in response to further data trends.
Risks to this view
Any unexpected rebound in AI investments or stabilization in tech stocks could challenge the prevailing bearish sentiment toward JPY and reintroduce risk-on behavior, driving the yen's strength against the dollar.
Sentiment by currency
USD+EUR~JPY GBP~Composite USD score: +0.65
Sources & References
How we cover this story