The dollar fell to a three-week low against a basket of currencies Thursday amid concerns about the sustainability of debt-funded investments in artificial intelligence while the Swiss franc rose sharply as French debt concerns prompted investors to buy the safe-haven currency.
U.S. stock futures fell, led by the tech-heavy Nasdaq, after Tesla cut its 2026 capital expenditure target, fueling renewed worries about AI investments.
"The dollar has lost upward momentum amidst more risk-off trading conditions over the past week, undermined in part by the paring back of investor optimism towards AI-related investments and the scaling back of Federal Reserve rate hike expectations," MUFG Bank currency analyst Lee Hardman said in a note.
U.S. money markets priced a mere 12% chance of the Fed raising interest rates next week, having priced a strong 70% chance at the end of last month, LSEG data showed.
The DXY dollar index, which measures the dollar's value against a basket of currencies, fell to 101.446, its lowest level since late September, in early European trade.
The Swiss franc rose sharply, particularly against the euro, boosted both by weak equity markets and by rising worries about French debt and civil unrest. The currency rose to its strongest in three and a half months at 0.9202 francs per euro and hit a one-month high of 0.8190 francs per dollar, LSEG data showed.
Political jitters related to France's public finances caused the spread between 10-year French and German government bond yields to reach its widest since November 2011 at nearly 173 basis points, LSEG data showed.
With the dollar already weak, investors favored selling the euro against the safe-haven franc.
"Euro/Swiss franc remains the clearer exhaust valve of French risk into FX," ING's global head of markets Chris Turner said in a note.
French risks have dampened expectations for further imminent interest-rate rises by the European Central Bank while AI jitters have reduced the prospect of near-term tightening by the Federal Reserve. These factors added further support to the low-yielding Swiss franc and weighed on both the dollar and the euro.
Similar to expectations for next week's Fed meeting, markets priced just a 13% chance the ECB will lift rates by 25 basis points on October 29.
"Rising government bond yields are making the ECB's job more difficult in setting monetary policy at a time when energy prices continue to move higher in Europe," MUFG Bank's Hardman said.
"Higher government borrowing costs if they are sustained are triggering an unwanted tightening of financial conditions in the euro-area which may curtail how much the ECB needs to raise rates in response to higher energy prices."
Meanwhile, any tech wobble that prompts markets to further trim Fed tightening expectations could lead to increased falls in the dollar, ING's Chris Turner said.
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