Dollar index slides to 101.7 as Iran war fears and AI-trade doubts hit the greenback

The dollar gave back part of last week's inflation-fuelled rally on Tuesday. The index dropped 0.25% to 101.71 as traders weighed two colliding forces: a US-Iran war keeping oil near five-month highs, and fresh doubts about whether America's AI boom can keep pulling in the foreign capital that props up the greenback. The move left the index roughly 1.3% below the 103 area it touched last week — its priciest since April 2025.

The odd part is that oil, which usually helps the dollar through inflation expectations, is now the very thing threatening the tech inflows that support it. Nomura's G10 FX chief Dominic Bunning told Reuters that dearer energy normally lifts the greenback. But past some point, soaring rates start breaking the AI trade, and the effect flips. He reckons the market is hovering right around that threshold.

The AI anxiety had a trigger. Elice Group, a South Korean AI services firm, crashed 32% on its first day of trade in Seoul — the country's ugliest opening print for a sizeable new listing. It echoed Australia's Firmus Grid, whose IPO was pulled barely two weeks earlier. CoreWeave dropped 4% in premarket trade while SoftBank's credit risk hit its highest in almost four years. Money ran for cover. The 10-year Treasury yield eased to around 5.08%, down from roughly 5.36% earlier this month. Brent spiked through $111 a barrel — its dearest since May — before fading back.

Why it matters

The dollar's two supports are now fighting each other. Higher oil lifts inflation pressure and rate expectations — bullish for the dollar in the textbook — but if energy-driven rate fears crack the AI equity boom that has funnelled record foreign capital into US shares, the dollar loses its bigger inflow. That is why Tuesday's pullback ran alongside falling oil and falling yields. The market started pricing the scenario where oil wins on inflation but loses on the AI trade.

The cross-currents show up in the rest of the majors. Sterling jumped 0.59% to $1.338 after resilient UK labour data. Markets now almost fully price a 25-basis-point Bank of England hike at its November 5 meeting, per LSEG. Sturdy jobs figures hand the Bank both the room and the motive to go again, reckons the eToro desk — and that could keep lifting the pound on rate expectations. The yen firmed 0.21% to 158.14 per dollar after a record sale of 20-year Japanese government bonds showed sidelined cash returning. State Street's Masahiko Loo read it as a refuge bid away from the political and fiscal turmoil in Europe, France in particular. And the Canadian dollar climbed 0.34% to 1.406 per greenback — its firmest reading in close to a month. The lift came after Alberta's first-ever separation referendum ended with a big majority voting to stay in Canada. For context on how China is managing its own currency through the same dollar swings, see our piece on China's Q3 GDP beat and the yuan. For the latest cable setup, see GBP/USD price analysis.