US Market: AI Boom Could Weaken Dollar’s Safe-Haven Appeal as Foreign Flows Rise
Foreign inflows into U.S. equities and corporate bonds have reached records, while analysts say the dollar’s gains rest on a crowded bet on AI-fueled growth.
- Foreign capital pouring into American equities and corporate bonds has lifted the dollar alongside Treasury yields, creating a crowded bet on American exceptionalism backed by stronger growth expectations.
- Much of this capital comes from institutional allocators likely to sell if they reassess growth, rates, or tech valuations; Erik Nelson of Wells Fargo likens these flows to "hot money."
- Concerns about heavily indebted CoreWeave have widened credit default swap spreads in recent weeks. "We can see this fraying around the edges when we look at credit default swaps," said Shaun Osborne of Scotiabank.
- If returns disappoint, an unwind could hit equities and rates, leaving the dollar vulnerable on three fronts. Dominic Bunning of Nomura said, "It's not as clear the dollar benefits in the same way it would have done in the past."
- After the Nasdaq peaked in March 2000, the dollar stayed firm for nearly two years before cracking when credit stress followed WorldCom's collapse. Nelson warns, "As we go into '27, it's a vulnerability for the dollar that I think is worth watching.
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The rapid growth in artificial intelligence investments has sparked a new debate in global financial markets. Record levels of foreign capital flowing into the US are supporting the strength of the dollar, while the potential impact of a technology crisis on the American currency is also being questioned.
The Economic Times
Times of IndiaUS Market: AI boom could weaken dollar’s safe-haven appeal as foreign flows rise
The US dollars safe-haven status could face pressure if the AI investment boom unwinds, prompting foreign investors to pull back from American equities and corporate bonds. Weaker growth, lower interest rates and credit-market stress could amplify the risk.
Foreign capital inflows into US stocks reached record levels, focusing on large technology companies, corporate bonds, and power infrastructure supporting AI. The US dollar's upward trend was halted under dual pressure from AI stocks and the Fed. The US dollar surged for the fourth consecutive week due to inflation concerns and high oil prices. The US dollar closed September with a strong gain against a basket of major currencies.
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