The US dollar held near two-week highs on Friday, supported by safe-haven demand as investors rushed to trim some high-risk positions following a sharp selloff in stocks, cryptocurrencies, and precious metals, driven by concerns over a surge in AI-related spending this year.

The Japanese yen edged higher, but remained on track for its worst weekly performance against the dollar since October, after giving back most of the strong gains recorded in late January, as traders prepared for the national elections scheduled for Sunday.

Global equities recorded their largest weekly selloff since November, as investors grew concerned about the scale of AI spending, along with the ripple effects of rapid advances in AI tools that could reshape multiple sectors.

Fiona Cincotta, strategist at City Index, said traditional safe havens such as gold, as well as alternatives like Bitcoin, were hit by the rebound move, while classic safe-haven currencies like the yen and Swiss franc did not benefit as much as usual.

She added: The timing of the rebound coincides with the selloff were seeing in the technology sector, and it makes sense that safe-haven flows are heading into the US dollar.

She said the yen is under pressure due to election-related uncertainty this week, leaving currency traders with relatively limited safe-haven choices, which makes the dollar the preferred option.

The dollar index, which measures the US currency against six major peers, slipped 0.1% but remained up 0.7% on a weekly basis and close to its highest level since January 23. The main driver behind this weeks rise was President Donald Trumps nomination last Friday of Kevin Warsh who is not seen as a strong supporter of aggressive rate cuts to lead the Federal Reserve.

Charu Chanana, chief investment strategist at Saxo, said investors are suddenly pricing in three shocks at once: tighter scrutiny of big tech spending, AI disruption risks for the software sector beyond the productivity narrative, and liquidity and margin liquidations driven by silver. She said what is happening looks like an unwind of crowded trades, with risk being reduced across asset classes.

Currency traders are awaiting the delayed January US jobs report, due next week. Several indicators released this week suggest the labor market in the worlds largest economy is losing momentum, prompting traders to price in a higher probability of rate cuts in the first half of this year rather than the second.

ING economists said in a note that any significant downward revisions to next weeks jobs data would increase pressure to eventually resume rate cuts.

Yen finds some support ahead of elections

The yen rose to 156.92 per dollar ahead of Sundays vote, where Prime Minister Sanae Takaichi is seen as having a chance of winning.

The election has unsettled investors, as fiscal concerns triggered a sharp selloff in both the currency and Japanese government bonds, with any further decline potentially having global spillover effects.

Samara Hammoud, FX strategist at Commonwealth Bank of Australia, said a strong victory would reduce near-term constraints on Takaichis fiscal goals, including cutting the consumption tax.

She added that it remains unclear how Takaichi plans to finance expansionary fiscal policy, and renewed concerns about Japans government debt burden would weigh on both government bonds and the yen.

Major currency moves

The euro rose 0.1% to $1.1791 after the European Central Bank left interest rates unchanged as expected on Thursday and downplayed the impact of currency volatility on future decisions.

Sterling recovered part of its nearly 1% loss from Thursdays session, rising 0.3% to $1.3565.

The Bank of England also left interest rates unchanged on Thursday in a closer-than-expected vote, signaling that borrowing costs are likely to fall if the projected slowdown in inflation continues.