Euro gets much-needed reprieve as AI wobbles rock the dollar

The US dollar was on course for its first weekly fall in five weeks on Friday, a reversal that lifted the euro away from a 17-month low. According to a Reuters report dated October 16, wobbles in AI-related investment sentiment and a drop in US Treasury yields combined to put the brakes on the dollar's recent gains.

Trading moves during the Asian morning were slight. Reuters reported the dollar was down 0.2% on the week at 158.13 yen and had shed about 0.1% to $1.1210 per euro. The dollar index, which measures the US currency against six major peers, stood at 102.07 and was set for a 0.14% drop over the week. In a later update published the same day, Reuters said the index had fallen 0.25% to 101.77 and was heading for a 0.45% weekly decline, while the euro was up 0.14% at $1.1235 after rising 0.56% on Thursday — its biggest daily gain in two months — leaving it on track for a weekly gain of roughly 0.39%.

The pause is notable mainly because of what preceded it. Over the previous five weeks the euro had dropped more than 3% against the dollar, pressured by jitters about France's growing debt pile and concerns about a winter energy squeeze in Europe. Higher oil prices tend to support the dollar while weighing on the currencies of energy importers such as the euro area and Japan, which has been one of the structural headwinds for both the euro and the yen. The yen itself tumbled in mid-September following what Reuters described as a disappointing Bank of Japan policy meeting.

The immediate catalyst behind the shift has been unease about the durability of the artificial-intelligence investment cycle. Equity markets saw a selloff in technology stocks during the week, and the associated decline in US yields removed some of the support the dollar had been drawing from rate differentials. Reuters noted that the dollar index still rose in two of the week's five sessions, including Wednesday, when hotter-than-expected inflation data more than offset the drag from the tech selloff — an illustration of how competing forces have been pulling the currency in opposite directions.

Positioning is part of the story. Reuters reported that the market has been positioned long in dollars, meaning further AI-related wobbles could trigger an unwind of those bets. Brent Donnelly, president of Spectra Markets, was quoted saying that the dollar's reaction to a serious repricing of the AI capital-expenditure boom should be unambiguously bearish for the currency, adding: "If the market is pricing rising odds of peak AI capex, the USD is a sell."

That framing links currency markets directly to the equity narrative that has dominated 2026 trading. If investors conclude that spending on AI infrastructure is peaking, the argument runs, expectations for US growth and therefore for US interest rates would be marked down, reducing the yield advantage that has underpinned dollar strength.

For now the move remains modest in scale. A sub-0.5% weekly decline in the dollar index follows a stretch of consistent gains, and the euro's recovery leaves it only slightly above the multi-month lows reached earlier in October. Attention in the coming sessions is likely to stay on US yields, incoming inflation and activity data, and whether the equity market's AI anxieties prove durable or fade.

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