The US dollar maintained its strength against major currencies on Friday, bolstered by haven demand following a global selloff in AI stocks. However, lower Treasury yields limited the extent of its gains in anticipation of a closely monitored US payrolls report. Currencies are responding to the dynamics of the equity and bond markets, analysts noted, as investors assess the implications of the Democrats’ success in the US midterm elections for the AI sector, tariffs, and the ongoing US-Israel-Iran conflict. Asia’s technology-focused markets experienced a significant downturn on Friday, reacting to the most pronounced drop in US equities since April 2025. This decline was driven by concerns regarding increased regulatory oversight of the artificial intelligence sector, especially in relation to data center development. “The dollar is getting some support from safe-haven demand,” said Dilin Wu. “That could keep it relatively firm against some Asian currencies, although falling Treasury yields may limit the upside.”
The overnight flight to safety resulted in a decline of approximately 10 basis points in the two-year US Treasury yield, which is particularly responsive to interest rate expectations, marking its lowest level since September 10. The 10-year yield fell nearly 6 bps, steepening the yield curve. By the Asian afternoon, yields experienced a rebound, with the 10-year increasing by 2 basis points to 4.8531%, while the two-year rose by 1 basis point to 4.4873%. “Currencies will likely take their cue from other markets, including equities and fixed income,” said Moh Siong Sim. Weaker Asian equities provide indirect support for the dollar in relation to Asian currencies, he stated. The equity rout prompted investors to seek refuge in safe-haven currencies. The Japanese yen reached a one-week peak of 157.27 against the dollar before retracing its gains by midday to 157.8.
The yield on the 10-year Japanese government bond decreased by 9 basis points to 2.665%, marking its lowest level since June 30. The yield on China’s 10-year sovereign bond has declined to approach a historic low. “The AI selloff is creating competing forces for the dollar,” Sim said. Falling US yields are blunting the greenback’s safe appeal and leaving the yen as the stand-out hedge, though it is probably too early to expect sustained yen gain purely on AI concern, he said. The euro experienced a decline of 0.2% against the dollar, trading at $1.1198. However, it is set to achieve a 0.4% increase for the week, thereby concluding a two-week period of losses. The dollar index, which measures the greenback against six peers, was up 0.3% at 101.74. The sterling was last down 0.1% at $1.3433 following the Bank of England’s widely anticipated increase in its policy interest rate. The currency is poised to conclude the week with a 0.3% increase, marking its fourth consecutive week of gains. The Swiss Franc exhibited minimal movement relative to the dollar.
Next on the agenda is Friday’s US non-farm payrolls report, from which investors will attempt to assess the trajectory of the Federal Reserve’s interest rate policy. Data on Thursday presented a positive outlook, as weekly initial jobless claims decreased by 6,000 to a seasonally adjusted 189,000, aligning with a 57-year low recorded in July and falling short of the 196,000 estimate from a poll of economists. “Recent data suggests improvement in the labour market, and we expect that to continue with this report,” analysts said. “Treasuries have just had a sizeable decline in rates heading into Friday’s release. While we could see some of that move reverse, as long as we remain in a downward channel in rates, we recommend buying any meaningful dip on a stronger-than-expected number.” The movement in Treasuries indicated a recalibration of Federal Reserve expectations, as fed funds futures reduced the likelihood of a 25-basis-point interest rate increase in December to approximately 70%, down from over 80% on Wednesday, according to traders.
