Quick overview
- The US dollar fell to a three-week low, with the Dollar Index around 101.50, as Treasury yields continued to decline.
- Investors are reducing large dollar positions amid concerns over AI investments, contributing to the dollar’s weakness.
- The yen and pound strengthened against the dollar, while oil prices rose due to geopolitical tensions involving Iran.
- Upcoming US jobless claims and European consumer confidence data may influence the dollar’s trajectory in the near term.
Thursday wasn’t shaping up well for the US dollar. The currency had fallen to a three-week low, with the Dollar Index trading around 101.50. Treasury yields were still heading lower, leaving the dollar struggling to attract buyers. The selling continued even as investors grew more cautious about taking risks in other markets.
The weakness has been building for several sessions. Stocks had rallied in New York on Wednesday, but the move wasn’t enough to lift the dollar. By early Thursday in Europe, the 10-year Treasury yield was back below 5.1% after another decline. With returns on US debt coming down, investors have less incentive to favour the dollar. Even a pullback in stock futures did little to change that.
ING analysts see several reasons behind the recent selling. Some investors have been reducing large dollar positions, while concerns over the amount of money pouring into artificial intelligence projects have added to the nervousness. The bank isn’t expecting a sudden collapse in the currency, though. ING sees room for further losses over time, although US interest rates and high oil prices could keep the selling from going too far.
In currency trading, the yen strengthened enough to push USD/JPY below 157.20, a level the pair hadn’t touched since early October. The pound also gained some ground, trading close to 1.3400 after two days of steady advances. The euro moved closer to 1.1250, although worries about France’s finances remain difficult to ignore. French 10-year bond yields were trading around 5.05%.
Oil prices were moving higher, too. West Texas Intermediate crude climbed more than 1.5%, with developments involving Iran keeping traders on alert. Gold had a quieter session, falling below $4,100 an ounce. The drop was somewhat unusual given that a weaker dollar and falling bond yields tend to favour the precious metal.
Thursday also brings the latest US jobless claims figures, which should offer another look at how the labour market is holding up. Europe has its own data coming, including consumer confidence numbers for the eurozone. Traders will be watching both, particularly with the Fed’s October meeting getting closer.
The dollar’s next move isn’t entirely clear. Lower bond yields have been a problem for the currency lately, and the upcoming US economic figures could either add to that pressure or give buyers a reason to return. Much depends on what the labour market numbers reveal.
Sophia Cruz
Financial Writer – Asian & European Desks
Sophia is an experienced writer, reporter and newsdesk member, mostly on the financial sectors. For the past 5 years Sophia has covered a wide variety of topics such as the financial markets, economics, technology, fin-tech and trading. Sophia has been a part of the FX Leaders team since 2017 and works on producing valuable content and information for traders of all levels of experience.
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