Yen and Swiss franc jump as investors rush to safe-haven assets
Business
Yen and Swiss franc jump as investors rush to safe-haven assets
(Reuters) - The yen and Swiss franc jumped against major currencies on Monday in a rush for safe-haven assets as tech stocks plunged, with investors weighing the implications of a Chinese startup launching a free open-source artificial intelligence model.
China's DeepSeek rolled out a free AI assistant that it says uses lower-cost chips and less data, seemingly challenging a widespread bet in markets that AI will drive demand along a supply chain from chipmakers to data centres.
"It’s a flying to safety move ... investors are buying yen and Swiss francs with the dollar now less appealing after recent rises and the latest Trump remarks on tariffs," said Francesco Pesole, forex strategist at ING, after mentioning the stock market reaction to the Chinese free AI assistant.
Last week was the dollar's weakest in more than a year on expectations that tariffs enacted by U.S. President Donald Trump will be lower than previously feared. But concerns have resurfaced as the U.S. and Colombia pulled back from the brink of a trade war.
The Japanese yen rose 1.2% to 154.16 against the dollar after hitting 153.71, its highest level since mid-December. The Swiss franc rose 0.95% to $0.8972.
"Taking it all together we would assess the incoming newsflow (about the AI breakthrough out of China) as ultimately working in a dollar-negative direction," said George Saravelos head of forex strategy at Deutsche Bank.
"The clearest analogy that comes to mind is the DotCom unwind of the 2000s where an external shock forced a large sector-specific unwind of U.S. tech valuations and capital expenditures with broad-based macro implications," he added.
Nasdaq futures slump after a cheaper Chinese AI model sparks panic in Silicon Valley.
The dollar index, which measures the currency against six others, dropped 0.28% at 107.16, still close to the one-month low it touched last week.
Adarsh Sinha, forex and rate strategist at BofA, said: "The gap between the U.S. dollar index, holding just under 108, and the level implied by rate differentials, closer to 106, has remained steady in the days following the (Trump) Inauguration."
Meanwhile, monetary policy decisions later this week and inflation data on Friday suggest the focus may shift, at least temporarily, to interest rate differentials, some analysts say.
Major central banks, including the Federal Reserve and the European Central Bank, will meet this week after the Bank of Japan raised its rates. Governor Kazuo Ueda said last week the BoJ would keep tightening its policy as wage and price increases broaden.
The prospect of high U.S. tariffs on goods from countries including China, Canada, and Mexico, as well as the eurozone, has stoked concerns about a renewed bout of inflation, boosting Treasury yields and the greenback in recent months.
The Mexican peso, a barometer of tariff worries, dropped around 1% to 20.48 per dollar, while the Canadian dollar was down 0.4% at 1.44. Trump said last week he may impose duties on products from Canada and Mexico from Feb. 1.
The euro was 0.16% lower at $1.051.
Inflation data will be released from Germany, France, and Japan on Friday, while the Fed's favourite inflation gauge is due in the U.S.
Some analysts said that tariffs could also affect BoJ's monetary policy.
"The BoJ's willingness to raise Japan's policy rate by 25 bps didn't come as a surprise," said Thierry Wizman, global forex and rates strategist at Macquarie.
"But coming against a backdrop of President Trump's recent tariff threats, the BoJ's hawkish tone might reflect policymakers' desire to not do anything that potentially would weaken the yen, and thus raise Trump's ire," he added.
Bitcoin, the world's best-known cryptocurrency, eased to a 1-1/2-week low of $97,810.50 but remained close to the record high of $109,071.86 touched last week on hopes Trump will usher in friendlier regulations.
