(Bloomberg) — The dollar fell the most in more than a month, erasing gains fueled by hotter-than-expected inflation data.
The Bloomberg Dollar Spot Index declined 0.3% Thursday, its biggest drop since Sept. 3, as artificial intelligence-related concerns fueled a bond rally that pushed yields lower and weighed on the currency. The greenback fell against nearly all of its major peers, falling about 1% against the Swiss franc.
“As AI debt has sold off, there has been a flight to safer assets like Treasuries, which is pushing down yields, which is pressuring the dollar,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc.
The slide came despite new economic data pointing to ongoing inflation pressures. US producer prices advanced 1.3% in September, the most in more than four years, according to the Bureau of Labor Statistics data released Thursday. Meanwhile, retail sales also beat forecasts, boosted by gasoline spending.
That followed a better than expected consumer inflation report which revived expectations for Federal Reserve interest-rate hikes just a day earlier, briefly boosting the dollar to its highest level since May 2025.
Traders will turn their attention to Fed Chairman Kevin Warsh’s remarks at the International Monetary Fund-World Bank Group annual meetings in Bangkok, Thailand, late Thursday New York time for more clues on the central bank’s policy path. It will be his last chance to send any signal on rates since the Fed enters a so-called blackout period on Saturday before its October policy meeting.
Ahead of raising rates in September, Warsh had sent a hawkish message to markets, prompting traders to adjust their rate-hike predictions. While Warsh has vowed not to steer markets with his own near-term outlook for monetary policy, the inflation surprise will likely heighten scrutiny of his remarks.
“Markets are in a bit of a weird place right now,” said Alex Cohen, a strategist at Bank of America, noting that while AI concerns have investors flocking to safe havens, the dollar’s close tie to AI spending means any trouble in the sector could ultimately weigh on the currency.
“If the market is pricing rising odds of peak AI capex, the USD is a sell,” Brent Donnelly, president of Spectra Markets, said in a note. “The entire US economy is a one-legged stool balanced on the AI trade.”
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