FOREX-Dollar nears two-week high as AI splurge spooks investors

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Investors unwind riskier positions on AI spending surge, dollar gets haven bid

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Yen weakens ahead of Japan's national election

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Euro and sterling recover after central bank decisions

(Updates throughout)

By Amanda Cooper

LONDON, Feb 6 (Reuters) - The dollar held near two-week highs on Friday, drawing on its safe-haven appeal, as investors rushed to unwind some of their riskier positions following a deep rout in stocks, crypto and precious metals driven by concerns over a surge in AI-related spending this year. The Japanese yen edged up, but was still headed for its worst weekly performance ?against the dollar since October and has given up most of late January's hefty gains, as traders brace for Sunday's national election. Global shares have seen their biggest weekly selloff since November, as investors fret about ?the massive spending on artificial intelligence as well as the cascading impact of fast-advancing AI tools that could upend various sectors.

Classic safe-havens like gold and ?alternatives like bitcoin have been caught up in the backlash, while go-to haven currencies like the yen and the ?Swiss franc have also not had the ?same draw, City Index strategist Fiona Cincotta said. "The timing of the recovery is coinciding with the tech rout that we're seeing. So it stands to reason that you're going to see some safe-haven ?flows going into the U.S. dollar," she said. "And especially because the Japanese ?yen is under pressure because of nervousness surrounding the election this weekend, it does mean that, for FX traders, areas of safe haven seem to be a little bit in short supply. So the dollar is sort of the best bet." The dollar index, ?which tracks the performance of the U.S. currency against six others, was ?down 0.1% but still ?up 0.7% on the week and around its highest since January 23. The catalyst for this week's rise was President Donald Trump nominating last Friday Kevin Warsh, who is not seen as a big advocate of steep rate cuts, as the next Federal Reserve Chair.

Charu ?Chanana, chief investment strategist at Saxo, said investors are suddenly pricing three shocks at once.

"Big Tech capex scrutiny, AI disruption risk in software beyond productivity hype, and a silver-driven liquidity/margin flush. This looks like a positioning flush where the same crowded exposures are being de-risked across assets." Next up for currency traders is the delayed release of the U.S. payrolls report for January, which lands next week. Various measures of labour market strength this week have suggested the world's largest economy is losing some momentum and traders are now pricing in a higher chance that interest rates will be cut within the first half of ?this year, rather ?than in the second.

"Major downward revisions to payrolls next week would add to the pressure to eventually resume rate cuts," ING economists said in a note.

YEN FINDS FOOTING AHEAD OF ELECTION The yen strengthened to 156.92 per dollar ahead of Sunday's vote where a victory ?for Prime Minister Sanae Takaichi could be on the cards.

The vote has investors on edge because fiscal worries have sparked a stomach-churning selloff in the currency and bond markets, and a further leg lower would likely reverberate globally.

"An outsized victory will reduce near-term constraints on Takaichi's fiscal policy goals including reducing the consumption tax," said Samara Hammoud, a currency strategist at CBA.

"Importantly, it still remains unclear how Takaichi plans to pay for expansionary fiscal policy. Renewed concerns about Japan's burgeoning government debt will weigh on Japanese government bonds and the JPY." The euro was up 0.1% at $1.1791 after the European Central Bank left interest rates unchanged as expected on Thursday and played down the effect of currency fluctuations on its future ?decisions. Sterling recouped some of Thursday's near 1% slide and was up 0.3% at $1.3565. The Bank of England also kept rates on hold on Thursday in an unexpectedly narrow vote and said borrowing costs are likely to fall if an expected drop soon in inflation is sustained. In the crypto market, bitcoin headed back towards $65,000, after having hit its lowest since October 2024 at $60,017 and ?was set for a 14% decline for the week, the steepest since November 2022.