US Dollar: Safe haven demand offers support amid declines in AI shares – MUFG

The US Dollar has recovered its initial post-election losses even as AI-related equities have suffered a sharp sell-off, according to MUFG’s Lee Hardman. The currency has drawn support this year from higher energy prices and record foreign demand for riskier US assets, but could come under pressure if those trends reverse. Further downside risks could arise if tighter financial conditions make a December rate hike by the Fed less likely.

How is the Dollar holding firm amid the AI equity rout?

"The spillover impact from the AI-related equity market sell-off into the foreign exchange market has remained surprisingly modest so far."

"It has resulted in the dollar index reversing all of its initial losses since the US mid-term election results were announced."

"US dollar strength this year has been supported by higher energy prices and record foreign demand for riskier US assets."

"If both these drivers continue to reverse, it would increase the likelihood of the US dollar weakening."

"If financial conditions continue to tighten it could make it less likely that the Fed will hike again in December as planned thereby adding to downside risks for the US dollar."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)