Dollar Slips and Franc Gains as AI Bets Fade and French Debt Looms

The DXY dollar index hit 101.446 in early European trade, its lowest point since late September. This decline follows Tesla’s decision to cut its 2026 capital expenditure target, a move that ignited broader fears regarding the sustainability of debt-funded artificial intelligence investments. According to MUFG Bank currency analyst Lee Hardman, the dollar’s upward momentum has evaporated as the market scales back Federal Reserve rate hike expectations. Money markets now assign only a 12% probability to a rate increase next week, a stark drop from the 70% chance priced in just last month.

Simultaneously, the Swiss franc has surged to its strongest position in three and a half months against the euro, trading at 0.9202, and reached a one-month high of 0.8190 against the dollar. This flight to safety is driven largely by mounting anxiety over French public finances. The yield spread between 10-year French and German government bonds has widened to nearly 173 basis points, the largest gap since November 2011.

ING global head of markets Chris Turner noted that the euro-Swiss franc pair has become the primary exhaust valve for French political risk. These regional pressures, combined with a cooling tech sector, have dampened expectations for European Central Bank action. Markets currently price only a 13% chance of a 25 basis point hike by the ECB on October 29. As energy prices climb, the rising cost of government borrowing is creating an unintended tightening of financial conditions, complicating the policy path for both the Fed and the ECB.