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Investing.com -- Sterling traded lower on Friday while the euro also fell, as a global equity sell-off driven by higher oil prices and AI-related concerns hit risk appetite and left the dollar far from the preferred safe haven.

Sterling was was down 0.10% against the dollar at $1.3375, while the euro fell 0.21% to $1.1193, as of 05:28 ET (09:20 GMT).

The greenback is vulnerable to the AI story, and the yen and Swiss franc are benefiting from the defensive rotation.

"FX moves confirmed that the dollar is far from the preferred safe haven at this stage, with the yen and Swiss franc emerging as the main beneficiaries of the defensive rotation," Francesco Pesole, FX strategist at ING, said in a note.

"The negative correlation between bonds and equities is reasserting itself, and FX markets are taking their cues from that dynamic," Pesole said. Ten-year Treasury yields fell back below 5.0% for the first time in a month, and the two-year SOFR swap rate dropped 15 basis points to 4.50%.

Pesole said equity jitters are enough to dent conviction on a Fed tightening cycle, but "the bar for pricing out a December Fed hike appears fairly high," which should limit larger dollar corrections.

UK retail sales volumes fell 0.4% month-on-month in September, Office for National Statistics data showed, versus a forecast 0.1% decline.

August was revised up to a 0.7% rise. Annual growth slowed to 0.8% from 2.7%, below the expected 1%.

The data may have added modest pressure, though sterling's smaller move than the euro's suggests it was not the main driver.

The OAT-Bund 10-year spread closed at 174 basis points after touching 178 bp, and the OAT-BTP spread reached 50 bp.

"The euro's sensitivity to France has clearly diminished," Pesole said, but the link "may, however, re-establish very rapidly" if a new pain level, perhaps 200 bp, is breached.

France faces a Moody's credit review. ING sees EUR/USD "quick to re-test the 1.1120 14 October low should bond turmoil persist" and calls EUR/CHF the "cleanest way to play European sovereign risk." It gave no timeframe or sterling targets. A stabilisation in risk sentiment would help the dollar consolidate and take "some shine off" the yen and franc, Pesole said.