US Dollar: Safe-haven role questioned as AI story weighs – ING

ING strategist Francesco Pesole notes that recent equity sell-offs driven by higher Oil prices and AI concerns have pushed investors toward the Japanese Yen (JPY) and Swiss Franc (CHF), undermining the Dollar’s traditional safe-haven role. He highlights falling US yields and reduced expectations for aggressive Federal Reserve (Fed) tightening, while still seeing limited scope for deeper USD losses if risk sentiment stabilizes and US PMIs stay in expansion.

Dollar loses ground to classic havens

"Yesterday was a rough session for risk sentiment, as global equities sold off on a combination of higher oil prices and AI-related concerns. FX moves confirmed that the dollar is far from the preferred safe haven at this stage, with the yen and Swiss franc emerging as the main beneficiaries of the defensive rotation."

"Crucially, the negative correlation between bonds and equities is reasserting itself, and FX markets are taking their cues from that dynamic. 10yr Treasuries broke back below 5.0% for the first time in a month, showing ever-reduced sensitivity to higher oil prices. The same dynamic is visible at the front end, where the 2yr SOFR swap rate dropped 15bp to 4.50% yesterday."

"Still, the bar for pricing out a December Fed hike appears fairly high, which should prevent larger USD corrections for the moment. Any stabilisation in risk sentiment can help USD consolidate across most pairs and take some shine off JPY and CHF. But the FX reaction function to further risk sell-offs is now looking much clearer."

"On the data side, focus will be on S&P Global PMIs today. Consensus is for some softening in the US figures, which, however, remain deep into expansionary territory."