Dollar Gains on Tech Sell-off as Markets Await CPI and AI Regulation Outlook

The U.S. dollar strengthened after markets absorbed a sharp sell-off in technology stocks, which began on Thursday. The currency had already been gaining before Friday’s U.S. payroll report showed 165,000 jobs added, well above expectations. Analysts attribute the dollar’s rise partly to a spill-over into defensive equities and broader markets, though the impact on foreign-exchange volatility has been limited to higher-beta G10 currencies such as the Australian dollar, Swedish krona, Norwegian krone and Korean won.

The outlook for the rally depends on whether a risk-off mood continues this week. If sentiment eases, a moderate correction could occur, as recent moves appear stretched relative to short-term drivers. The October U.S. consumer-price index is forecast to rise 0.3% month-on-month for both headline and core measures, supporting expectations of a December Federal Reserve rate hike of 19 basis points and helping to shield the swap curve from equity shocks.

Oil prices remain a variable, with Brent crude stabilising just below $100 per barrel amid lingering geopolitical risk in the Gulf and uncertainty over U.S. and Israeli political developments. In Israel, opposition candidate Gadi Eisenkot, who favors a more diplomatic stance toward Iran than Prime Minister Benjamin Netanyahu, has received a mandate to form a government and has six weeks to do so.

Analysts note that the euro’s recent decline against the dollar appears sharper than justified by short-term rate differentials, estimating a 2.1-2.3% undervaluation. They expect EUR/USD to recover above 1.120 unless risk sentiment deteriorates further. The eurozone’s data calendar is quiet, but attention will turn to the European Central Bank’s succession process, with candidates Pablo Hernández de Cos and Klaas Knot slated for discussion at today’s Eurogroup meeting.

The euro-pound pair is also trading below its short-term fair value, prompting expectations of a move back toward 0.840. Bank of England Governor Andrew Bailey is set to speak after last week’s hawkish rate hike, and analysts anticipate another hike in February, though consensus on further increases may be harder to achieve.

In Central and Eastern Europe, inflation data are due from Hungary, the Czech Republic, Romania and Turkey, with expectations of modest rises in most cases. Regional markets have seen rate pressures ease following a global sell-off and mixed central-bank actions, but analysts remain bearish on many CEE currencies amid a stronger dollar and narrower rate differentials.