US FX WRAP: Dollar weighed by Warsh avoiding forward guidance

The dollar was weaker against peers as AI concerns continued to dominate FX price action. Concerns over AI debt and associated rising yields persisted with relief short-lived as SPX equity expected volatility hit levels last seen in June. Despite the rise in oil prices on speculation over the Saudi East-West pipeline being targeted again, US 2yr yields traded lower, offering the buck no relief on a short-term rate differential basis, weighed by Fed Chair Warsh's lack of forward guidance or mention of market pricing heading into the October meeting. Meanwhile, US yields on the longer end were firmer as the flight-to-quality rally ran out of steam. US data had a muted impact on price action, though hotter-than-expected import and export prices in September highlighted the challenging inflationary environment the Fed faces. DXY hit lows of 101.576, later bouncing to 101.80.

JPY lagged in the mixed US yield environment and as Japanese stocks were dragged lower alongside US underperformance. Slight JPY strength was seen on remarks from BoJ Governor Ueda that he has been watching the weak JPY and the Middle East in terms of inflation and that the BoJ will continue to adjust accommodation.

NZD, GBP, and AUD were the best performers on Friday with international equities largely outperforming the US given their lesser exposure to AI concerns.