The US dollar held near a two-week high on Friday, poised for its strongest weekly performance since November as a decline in stocks driven by AI spending concerns rattled investors.
At 9.40am, the US Dollar Index (DXY) was at 97.882, down 0.06% since it opened in early Asian trading on Friday.
The USD has continued to strengthen since President Donald Trump nominated Kevin Warsh as the new Fed Chair last week, as markets expect him to be less aggressive in pushing for interest rate cuts.
The expectation helped ease concerns about the central bank's independence, supporting the dollar's strength.
Meanwhile, the sharp sell-off in technology stocks this week was driven by investor concerns about the huge spending on artificial intelligence (AI) and the long-term impact of the rapidly growing use of AI technology, which has the potential to disrupt various sectors of the economy.
Risk aversion also supported the dollar despite a decline in US Treasury yields, as economic data showed a weakening labor market ahead of the highly anticipated January Non-Farm Payrolls (NFP) report next week.
ING economists said the sharp slowdown in hiring suggests the Fed may have acted too early in reducing its focus on labor market risks at its January policy meeting.
This has increased pressure for a resumption of interest rate cuts in the near term.
Markets are now still expecting two more rate cuts this year, with the first in June likely to continue in a gradual manner.
In Europe, the Bank of England kept interest rates on hold on Thursday in a narrow 5-4 vote, a decision that the market had not expected. The central bank also signaled that borrowing costs could be cut if the expected near-term downward trend in inflation continues.
