Dollar dips as easing AI and Mideast worries limit its appeal

By Sophie Kiderlin

LONDON, Nov 9 (Reuters) - The US dollar eased on Monday after posting its biggest gain in nearly six months on Friday when robust US jobs data boosted bets for higher interest rates.

The dollar also got support from a rout in AI stocks at the end of last week that drove investors to seek safe-haven assets, but market sentiment generally improved on Monday.

It was helped in part by a 3.3% drop in Brent crude futures after US President Donald Trump downplayed the likelihood of renewed strikes on Iran.

The US dollar index, which measures the currency against six major rivals, dipped 0.3% to 101.87. It was still close to levels hit on Friday when the dollar rallied almost 0.8% as stronger-than-expected data showed jobs growth accelerated in October while the unemployment rate fell.

"We think the dollar rally requires the risk-off mood to persist this week. Otherwise, there is some moderate correction risk, as Friday’s move looked a bit too stretched relative to short-term market drivers," Francesco Pesole, FX strategist at ING, said.

He said the macro backdrop should prevent the dollar from falling to last week's lows, although the market will be monitoring US consumer inflation data due on Tuesday.

The euro was last 0.4% higher at $1.1188, after falling 0.7% on Friday and hitting a low of $1.1132, not far from the trough hit a week earlier of $1.1105, the weakest since May 2025. 

Sterling rose 0.5% to $1.3412 and the dollar eased 0.3% to 157.91 yen following Friday's 0.6% jump.

The risk-sensitive Australian and New Zealand dollars also rallied on Monday after retreating at the end of last week. The Aussie rose 0.5% to $0.6895 and New Zealand's kiwi jumped 1.2% to $0.5611, with traders also weighing the implications of too-close-to-call weekend elections in New Zealand.

FED RATE OUTLOOK IN FOCUS 

Tuesday's US consumer price index data is expected to show a monthly rise of 0.3%, according to a Reuters poll.

"That should help cement expectations for a December Fed hike," ING's Pesole said. 

Futures imply around 81% odds the US Federal Reserve will raise rates on December 9, higher than a week earlier, according to CME Group's FedWatch tool.

Bets on Fed tightening next month had been receding given the rout in global tech stocks. It was driven by investors' concerns about the outlook for AI investment, profitability and regulations, particularly after Democrats won the US midterm elections last week.

"The Blue Sweep has put the AI trade to the test given risks for heavier AI regulation and a slowdown in the CAPEX cycle. At the same time, however, economic realities continue to surprise to the upside — data momentum remains very strong across indicators," Barclays strategists wrote in a report. "This combination is yet to dent the dollar's appeal."

Comments from Fed officials on Friday also supported views for a rate hike. 

(Reporting by Sophie Kiderlin in London and Kevin Buckland in Tokyo; Editing by Chris Reese, DJ Yap and Barbara Lewis)