SHANGHAI/SINGAPORE, Nov 6 (Reuters) - The US dollar held firm against major currencies on Friday, drawing support from haven demand after a selloff in AI stocks worldwide, though lower Treasury yields capped gains ahead of a closely watched US payrolls report.
Currencies are swaying to the tune of the share and bond markets, analysts said, as investors take stock of the Democrats' victory in the US midterm elections and what that means for the AI trade, tariffs and the US-Israel-Iran war.
Asia's tech-heavy
markets crumbled on Friday following the steepest decline in US stocks since April 2025 on fear of tighter scrutiny of the AI industry, particularly around data centre construction.
"The dollar is getting some support from safe-haven demand," said Dilin Wu, research strategist at Pepperstone. "That could keep it relatively firm against some Asian currencies, although falling Treasury yields may limit the upside."
The overnight flight to safety drove the two-year US Treasury yield, which is sensitive to interest rate expectations, down about 10 bps to its lowest since September 10. The 10-year yield fell nearly 6 bps, steepening the yield curve.
By the Asian afternoon, yields rebounded with the 10-year up 2 bps at 4.8531%, while the two-year rose 1 bp to 4.4873%.
"Currencies will likely take their cue from other markets, including equities and fixed income," said Moh Siong Sim, currency strategist at OCBC.
Weaker Asian equities are indirectly supportive of the dollar against Asian currencies, he said.
DEMAND FOR SAFETY
The equity rout prompted investors to seek shelter in haven currencies. The Japanese yen hit a one-week high of 157.27 a dollar before paring gains by midday at 157.8.
The yield on the 10-year Japanese government bond fell 9 bps to 2.665%, its lowest since June 30. The yield on China's 10-year sovereign bond also fell to near a record low.
"The AI selloff is creating competing forces for the dollar," Sim said. Falling US yields are blunting the greenback's safe appeal and leaving the yen as the stand-out hedge, though it is probably too early to expect sustained yen gain purely on AI concern, he said.
The euro was down 0.2% against the dollar at $1.1198, but poised for a 0.4% rise for the week, ending two weeks of loss. The dollar index, which measures the greenback against six peers, was up 0.3% at 101.74.
The sterling was last down 0.1% at $1.3433 after the Bank of England raised its policy interest rate as widely expected. The currency is on track to end the week 0.3% higher, for the fourth week of gain.
The Swiss Franc was roughly flat against the dollar.
NON-FARM PAYROLLS
Next on the agenda is Friday's US non-farm payrolls report from which investors will try and gauge the Federal Reserve's interest 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 move in Treasuries also reflected a repricing of Fed 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.
(Reporting by Li Gu in Shanghai and Ankur Banerjee in Singapore; Editing by Christopher Cushing)
