Dollar Suffers Largest One-Month Drop as AI Fears Drive Safe-Haven Money Into Treasuries

The dollar recorded its biggest decline in more than a month, erasing gains that had been triggered by higher-than-expected inflation data.

The Bloomberg Dollar Index fell 0.3% on Thursday, its largest drop since September 3. Concerns related to artificial intelligence (AI) pushed Treasury prices higher, weighing on yields and dragging the dollar lower.

The dollar declined against nearly all major currencies, including a roughly 1% drop against the Swiss franc.

"As AI-related bonds are being sold off, money is moving into safer assets like U.S. Treasuries, pushing yields down and putting pressure on the dollar," said Andrew Hazlett, a foreign exchange trader at Monex Inc.

The dollar fell even though the latest economic data showed persistent inflationary pressure. Data released Thursday by the U.S. Bureau of Labor Statistics showed producer prices rose 1.3% in September, the largest increase in more than four years. Meanwhile, retail sales also beat expectations, supported by gasoline spending.

Just a day earlier, higher-than-expected U.S. consumer inflation reignited market expectations for a Federal Reserve rate hike, briefly driving the dollar to its highest level since May 2025.

Traders will next focus on remarks by Federal Reserve Chairman Kevin Warsh on Thursday evening New York time at the International Monetary Fund (IMF)-World Bank Group annual meetings in Bangkok, Thailand, for more clues on the Fed's policy path. The Fed will enter its blackout period on Saturday ahead of its October policy meeting, making this Warsh's last opportunity to signal on interest rates beforehand.

Ahead of the September rate hike, Warsh had signaled a hawkish stance to the market, prompting traders to adjust rate-hike expectations. Although Warsh has pledged not to use his views on the near-term monetary policy outlook to guide the market, the above-expectations inflation reading may draw more attention to his remarks.

"The market is currently in a somewhat strange state," said Alex Cohen, a strategist at Bank of America. He noted that while AI concerns are driving investors toward safe-haven assets, the dollar is closely tied to AI spending, meaning that any problems in the sector could ultimately weigh on the dollar.