Deutsche Bank: The AI Dollar Era Has Arrived, the Dollar's Safe-Haven Status Is Weakening

October 30 — Deutsche Bank says AI-driven market adjustments could change the traditional relationship between the dollar and U.S. equities, with the dollar no longer necessarily a safe-haven asset. The recent simultaneous weakening of tech stocks and the dollar reflects that the risks facing the dollar are more two-way than the market had previously priced.

One reason is the unprecedented scale of overseas investors' holdings of U.S. stocks. Foreign investors now hold more than $20 trillion in U.S. equities, and about 90% of that asset growth has come from price appreciation rather than new purchases. Another key factor is a change in equity hedging mechanisms. Over the past decade, U.S. stocks have been negatively correlated with the dollar, giving investors a strong incentive not to hedge currency risk. Once U.S. stocks are hit by domestic factors, the dollar could fall in tandem with U.S. equities, deepening overseas investors' losses.

If U.S. real yields and the stock market decline at the same time, it would mean the market is marking down expectations for AI capital expenditure growth, and could further confirm that the dollar's safe-haven attributes are weakening. Deutsche Bank sums up the trend this way: "The AI dollar era has arrived."