The Japanese yen reversed some of its safe-haven gains on Tuesday as investors assessed the potential impact of a Chinese startup’s free open-source artificial intelligence model, DeepSeek, which claims to operate on lower-cost chips and minimal data. The dollar index, which tracks the US currency against six major peers, rose 0.13% to 107.94, following a market shakeout tied to the announcement.
The US dollar gained 0.7% against the yen, trading at 155.70, as the yen lost ground amid easing risk-aversion sentiment. The euro fell 0.6% to $1.0428, pressured by fresh tariff threats, while the British pound declined 0.4% to $1.2441.
The risk-sensitive Australian dollar dropped 0.62% to 0.6254, and the New Zealand dollar fell 0.58% to 0.5659, reflecting broader concerns about global economic uncertainty.
Impact of DeepSeek AI
DeepSeek, a Chinese startup offering a free open-source AI model, has introduced a new variable into global financial markets. Its claim to operate efficiently using lower-cost chips and less data has raised questions about its potential to disrupt existing AI-driven industries and reduce demand for expensive US semiconductor technologies.
The news hit US markets on Monday, with ripple effects across global currencies. The dollar initially weakened but later stabilized as investors reassessed the long-term implications of the development.
“DeepSeek’s AI models, like the DeepSeek-R1, have demonstrated superior performance compared to prominent U.S. models such as OpenAI’s GPT-4 and Meta’s LLaMA 3.1,” said Charu Chanana, Chief Investment Strategist at Saxo Bank. “These achievements span across various benchmarks, including complex problem-solving, mathematics, and coding, positioning DeepSeek as a key player in the global AI arena.
“Even if DeepSeek does not maintain its current level of popularity, this development serves as a reminder that competition in the global AI arena is intensifying, and Nvidia may not be in the pole position forever.”
Broader market outlook
Currency markets remain volatile as investors weigh the implications of China’s advancements in AI and broader geopolitical developments. Analysts expect heightened sensitivity to news affecting global trade and technology sectors, with the yen and risk-sensitive currencies likely to remain under pressure.
