It was a bruising start to the day for the dollar. Large selloffs in the tech-focused Nasdaq stock exchange saw the dollar lose value against the pound and euro, though it claimed back its losses by the end of the day.
The US market reacted strongly to the release of a new AI model from Chinese firm DeepSeek. The new R1 model is comparable in power to US company OpenAI’s 01 model, which powers ChatGPT, but the Chinese technology was allegedly made for a fraction of the price.
Worried that the US AI market may be overvalued, investors raced to sell their shares in US AI-focused companies. Google parent company Alphabet lost $80bn in value, and Microsoft, which is heavily invested in OpenAI declined by more than $130bn. The real loser of the day, however, was chipmaker Nvidia, which lost a record-breaking $600bn in value.
The losses spread out from US firms to companies across Europe and Asia that have a stake in western AI infrastructure, allowing the dollar to rally. By the time the market closed, it had clambered back to where it began 24 hours before.
The dollar’s rise was aided by poor manufacturing data out of the Germany’s Ifo Business Climate index, which weighed down the euro. In December, the index showed the lowest levels of activity since May 2020, and the new numbers, while an improvement, indicated a stagnant German economy.
In a week where the US Federal Reserve makes its interest rate decision and there is a slew of EU growth and unemployment data due to be published, this run on the US tech market makes for a volatile trading market.
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