Dollar Slides on AI Debt Worries and Cautious Fed Remarks, Headed for First Weekly Drop in Five Weeks
Investors are pulling back from the dollar as doubts grow over whether data center companies can repay the debt funding the AI buildout, while cautious remarks from Fed officials have cooled bets on another rate hike this month.
The U.S. dollar is headed for its first weekly decline in five weeks as investors grow uneasy about the debt financing the artificial intelligence buildout and as cautious remarks from Federal Reserve officials cool expectations of another interest rate increase this month.
The DXY dollar index slipped 0.1% to 101.944 after touching a 10-day low of 101.816 overnight, according to Barron’s. The slide came alongside falling Treasury yields, as a flight to safety sent the benchmark 10-year yield toward its biggest weekly drop in more than a year, Reuters reported.
AI debt doubts drive the selloff
The pressure began with doubts over whether the vast spending on AI infrastructure can pay off. “Over the next three years, the U.S. is expected to spend 2.5%-3% of GDP on capital expenditure and AI infrastructure, which is larger than any infrastructure build out in the U.S. history,” Jefferies economist Mohit Kumar wrote in a note. Kumar warned that if the pace of the buildout slows, it would have serious consequences for AI companies and the broader economy.
AI stocks have cratered this week, and the stress has spread into parts of the credit market as investors worry data center operators may not turn profitable in time to repay their debts, Reuters reported. “The reaction function of the dollar to a serious repricing of the AI capex boom should be unambiguously dollar bearish,” said Brent Donnelly, president of Spectra Markets. “If the market is pricing rising odds of peak AI capex, the USD is a sell. The entire US economy is a one-legged stool balanced on the AI trade.”
The reversal gave the euro some relief: the common currency climbed from a 17-month low, gaining about 0.1% on the week to $1.1210, while sterling held near $1.3270. The Australian dollar fell 0.8% after a soft jobs report cooled expectations for another rate increase there.
Fed officials sound no hurry
The dollar also lost ground after Fed officials signaled little urgency to raise rates again. New York Fed President John Williams and Vice Chair for Supervision Michelle Bowman sounded cautious about further increases, while San Francisco Fed President Mary Daly said the central bank could wait for a clearer picture, according to a Wall Street Journal market update.
Traders now see a 72% chance the Fed leaves rates unchanged at its October 27-28 meeting, up from 53% a month ago, the CME FedWatch tool showed. Fed Chair Kevin Warsh speaks in Bangkok on Friday at the International Monetary Fund’s annual meeting, his last public appearance before the decision, and analysts say his remarks could move rate expectations.
The calm in currencies may not last. With markets heavily positioned in long-dollar bets, further wobbles in AI investment could push the currency down more, analysts say.
Reporting based on coverage by Barron’s, Reuters and The Wall Street Journal.
