The Dollar pushed broadly higher on Tuesday as a global selloff in AI-related technology shares drove capital into the greenback and September Fed hike odds held around 80%. Brent crude's slide below $85 did nothing to loosen those rate expectations. Traders now wait on Wednesday's FOMC decision.
The Dollar pushed broadly higher on Tuesday, supported from two directions at once: a sharp selloff across global AI-related technology shares, and persistent expectations that the Federal Reserve could still raise rates in September. Deteriorating risk sentiment sparked an immediate flight into the greenback, while resilient Fed tightening expectations kept Dollar buying from fading even as oil prices extended their sharp correction.
AI selloff hits Asian equities hardest
Asian equity markets absorbed the worst of the selling. South Korea's KOSPI tumbled -10.84%, its largest daily loss since March 4, after plunging as much as -11.3% intraday and triggering a market-wide circuit breaker. Japan's Nikkei 225 lost -3.95%, ending at its weakest close in more than two months.
Semiconductors remained in the spotlight. SK Hynix slid -14.7% after its ADRs posted record lows in New York, while Samsung Electronics fell -14.4%, its biggest daily decline since 2008. Behind the selling sits growing investor concern over Nvidia's evolving role in the AI industry: rather than simply supplying chips, Nvidia is increasingly seen as helping finance the very companies buying its hardware, a circular financing model that has revived memories of vendor-financing practices during the dot-com boom.
Oil fell, but Fed hike bets refused to budge
Brent crude slid below $85 after last week's surge above $100, and diplomatic developments have continued to point toward de-escalation. President Donald Trump said Washington and Tehran were engaged in "very friendly negotiations".
Normally such a collapse in oil prices would ease inflation concerns and reduce expectations for tighter monetary policy. Instead, September Fed hike odds implied by futures remain around 80%, barely changed from earlier in the week and still notably higher than before the Middle East conflict intensified. Higher energy costs typically filter through transport, production and consumer prices with a lag, so lower spot crude today does not immediately erase the inflation impulse already created.
FOMC is the next hurdle for Dollar bulls
That backdrop continues to provide fundamental support for the Dollar, yet traders remain cautious ahead of Wednesday's FOMC decision. The greenback has yet to break convincingly higher against either Euro or Yen, while gains against Sterling, Swiss Franc and Canadian Dollar have also been relatively modest.
Markets will likely need stronger confirmation from the Fed before fully embracing another round of Dollar buying — either a distinctly hawkish statement, Chair Kevin Warsh's guidance, or dissenting votes in favor of an immediate hike.
Among major currencies, the Canadian Dollar outperformed as it recovered part of Monday's oil-driven losses. The Dollar ranked second and remains the week's strongest performer overall, while Yen and Swiss Franc lagged despite the broader risk-off tone, as elevated US rate expectations continued to favor the Dollar over traditional low-yielding defensive currencies.
Source: ActionForex
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