The trigger for the retreat from risk was a Democratic sweep in Congress that hammered US stocks on Thursday, with the Nasdaq recording its deepest one-day drop since “Liberation Day” in April 2025.
Fears of tighter scrutiny of the artificial intelligence industry, particularly around data centre construction, has roiled global markets this week.
The equity rout prompted investors to find shelter in bonds and haven currencies. The yen strengthened 0.2% to a one-week high of 157.40 a US dollar before reversing some of that gain.
The Swiss franc firmed 0.2% against the US currency. The dollar index, which measures the greenback against six peers, was roughly flat at 101.55.
“The AI selloff is creating competing forces for the dollar,” OCBC analysts said. “Falling US yields are blunting the dollar’s safe-haven appeal, leaving the yen as the standout hedge against more US-centric volatility, while flows from Japan’s Government Pension Investment Fund could provide another tailwind for the yen.”
The flight to safety drove the 10-year Treasury yield down overnight. It was last trading at 4.84% in the Asian morning, near its lowest level since September 10.The two-year yield, which is more sensitive to interest rate expectations, fell about 10 basis points overnight to 4.47%.
The move in bonds also reflected a repricing of Federal Reserve expectations, with fed funds futures scaling back the probability of a 25-basis-point interest rate hike in December to around 70% from more than 80% on Wednesday, traders said.
The euro was flat against the dollar at $1.1222, but poised for a 0.5% rise for the week, ending two weeks of loss.
Next on the agenda is Friday’s US non-farm payrolls report from which investors will try and gauge the Federal Reserve’s rate path. Data on Thursday offered an upbeat prelude, with weekly initial jobless claims falling by 6,000 to a seasonally adjusted 189,000 – matching a 57-year low in July and below the 196,000 estimate in a Reuters poll of economists.
“Recent data suggests improvement in the labour market, and we expect that to continue with this report,” MUFG analysts said, referring to the non-farm payrolls data.
“Treasuries have just had a sizeable decline in rates heading into Friday’s release. While we could see some of that move reverse, as long as we remain in a downward channel in rates, we recommend buying any meaningful dip on a stronger-than-expected number.”
The sterling was last up 0.1% at $1.3457 after the Bank of England raised its policy interest rate as widely expected.
