FX Daily: AI jitters have damaged USD safe haven appeal
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
Should tech stocks stabilize or rebound significantly, this could reverse the current sentiment and provide renewed support for the USD as a safe haven. Additionally, any aggressive Fed signaling concerning interest rate hikes could also lead to a reevaluation of the USD's downward momentum.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Nordea | Bearish | 1.1000 |
UBS | Bullish | 1.1800 |
Scotiabank | Bullish | 1.1700 |
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 if led by AI concerns. Still, we don’t think we are on the brink of a major USD decline. EUR/USD may struggle to stay supported today as protests in France spill over into local assets, while we see limited impact from US-Ukraine news for now Francesco Pesole and Frantisek Taborsky Markets will be closely monitoring AI, France and Ukraine this week USD: AI jitters leave USD on less solid ground AI-related jitters entered the FX picture last week, although currencies are more accurately borrowing the reaction from the rates channel.
The USD two-year OIS/SOFR has dropped 25bp from the 14 October post-US CPI print. These are mammoth moves considering they have been driven almost entirely by AI concerns, with effectively no macro input. Markets appear to have a clear reaction function in mind: stock market turmoil is enough to drastically reduce Federal Reserve tightening plans, even with inflation running hot.
The reasoning is probably linked to the market wealth effect that many believe has underpinned US economic resilience. This is enough to suggest the dollar will not be the safe-haven of choice and may actually lag many other G10 currencies if stock market instability originates in tech/AI. Still, contagion to broader US and world equity indices has so far been contained, while the Nasdaq drop has only erased the last 30 days of gains.
AI-related sentiment will remain an input for FX this week, but could easily fade if tech stocks find some stability. From a macro perspective, despite the repricing lower in US rates, we do not feel this marks the start of a major USD downtrend. A December Fed hike remains a likely outcome; policymakers do not appear to be in a position to send a dovish message at the October meeting, and still-elevated energy prices argue against a material recovery in global bond markets.
A return to 101.0 in DXY remains possible over the coming weeks, but we do not see much more downside beyond that for now. The US calendar is rather light this week, while the FOMC is in its pre-meeting communication blackout. For now, we are not observing any obvious FX impact from souring US-Ukraine (and Europe) relationships.
Markets are probably quite cautious about pricing in an imminent end to the Russia-Ukraine conflict or any longer-term implications for Europe. Things could change in the case of meaningful developments this week. Francesco Pesole EUR: French protests may curb upside for now EUR/USD briefly dropped back below 1.120 overnight before inching higher again this morning.
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