US dollar from "safe-haven king" to high-volatility asset? Global funds chase US stocks AI themes US dollar fate seems tied to the Nasdaq

International financial giant Deutsche Bank said in a research report on Thursday that the US financial markets are increasingly relying on international capital inflows into domestic equities for their own financing, rather than raising funds through debt investments on a large scale. The bank's analysts stated that this shift could pose higher risks for the US dollar exchange rate. In the report addressed to clients, the bank stated that geopolitical tensions are weakening the willingness of international investors to hold US debt long-term, while the boom in artificial intelligence implies that more capital is flowing into the US stock market, exposing the US dollar to the volatile frontier of the tech industry. Foreign financing for the US is shifting from countercyclical, long-term US Treasury funding to more cyclical, AI-driven technology stock market funding. As a result, the US dollar may gradually transition from a traditional safe-haven asset to a highly volatile risk asset highly linked to the Nasdaq 100 index, considered a "global tech stock benchmark." Is the US dollar evolving from a "haven king" to a high-beta tech asset? Deutsche Bank's senior financial market analyst Marika Sachedwa stated that the US external deficit financing model is shifting towards a greater reliance on equity-type funding, signaling a change in the risk profile of the US dollar. With the increasing reliance on foreign investment in stocks rather than bonds to bridge the external financing gap, the US dollar is losing some stability provided by the countercyclical demand for US Treasuries during economic downturns or risk asset pullbacks. This structural shift makes the US dollar more sensitive to AI themes and the entire tech stock bull-bear cycle. "The demand for US Treasuries often exhibits strong countercyclicality, providing support for the US dollar during economic recessions or risk asset pullbacks. This diversification of risk encourages investors to hold unhedged US dollar-denominated assets. If the financing model shifts towards more cyclical, retail-driven stock-type funds, the US dollar exchange rate will become riskier and more heavily reliant on the super bull market driven by artificial intelligence," she said. The US has been facing persistent "twin deficits": a current account deficit of around $1.12 trillion and a trade deficit of $1 trillion by 2025. The ability to attract substantial foreign capital inflows has been crucial for the US government to maintain its financing capacity. Sachedwa's views echo those of Andrew Hozier, Deputy Governor of the Reserve Bank of Australia. Hozier earlier this year stated that the shift of funds from bonds to stocks signifies that the US is gradually losing its "overdue financial privilege" - the ability to borrow on a large scale as the US dollar is a global reserve currency. However, the value of the US dollar has seen a significant rebound this year. Last year, due to the unpredictable policy approach of US President Donald Trump on international relations and trade, coupled with rising US debt burden, markets tended to believe that the US dollar would face a longer and more structural decline. The dollar depreciated by nearly 10% that year. Today, the US dollar has recovered almost half of its decline in 2025 with factors such as uncertainty stemming from the US and Israeli war on Iran, the possibility of recent interest rate hikes under Powell's leadership at the Federal Reserve to tighten monetary policy and potentially weaken the Fed's communications, and a record influx of capital into the US domestic market to chase artificial intelligence investment themes. Last month, under Powell's leadership at the Federal Reserve, the stance on price stability mechanisms and reforming Fed expectations management was shifted to a "less communicative mode" in the center of Fed monetary policy, combined with Wall Street repricing the hiking path, collectively driving the US dollar index to its strongest monthly performance in nearly a year. Bullish sentiment on the US dollar has recently revived, mainly due to Kevin Warsh's formal leadership of the Federal Reserve. His strong hawkish commitment to restoring price stability mechanisms and a communication style seen as more hawkish towards the market has reinforced expectations of US dollar appreciation and long-term tightening of benchmark interest rates, indicating that higher US rates will support the dollar. The fate of the dollar seems to be tied to the Wall Street tech stock bull market cycle Deutsche Bank's core warning is not that "foreign funds have abandoned US bonds," but that the marginal financing structure of US external deficits is shifting from relatively stable, countercyclical Treasury funds to more cyclical and risk-seeking equity funds. Foreign investors purchasing US stocks primarily provide international balance of payments financing for the US current account deficit and do not directly fill the fiscal budget gap; the fiscal deficit still needs to be financed through the issuance of Treasury bonds. However, if the structural demand for US bonds weakens among foreign official institutions and long-term allocators, new Treasury bonds will need to be absorbed by US domestic investors, banks, money market funds, and more price-sensitive overseas private capital, often meaning that the Treasury Department must pay higher term premiums, making it harder for Treasury yields to sustainably decline. For US Treasuries, this shift leans towards long-term bearishness and short-term increased volatility. In the past, during global economic downturns or risk asset crashes, funds often flowed into the US dollar and US Treasuries simultaneously, creating a countercyclical buffer of "rising US Treasuries - strengthening US dollar." If foreign funds increasingly enter US stocks with the aim of chasing AI and US corporate profits, the balance sheet of the US dollar will be more dependent on risk appetite rather than safe-haven demand. If AI profit expectations cool down and US stocks undergo a deep correction, foreign investors may simultaneously sell stocks and hedge the US dollar, weakening the safe-haven support for the dollar, and US Treasuries may not automatically gain sufficient foreign buying as in the past. The latest financial stability assessment by the Federal Reserve has pointed out that forward stock price-to-earnings ratios are still at historically high levels, while term premiums for US Treasuries are rising, indicating that "overvalued stocks and high long-term bond yields" may coexist, and a US stocks correction may not necessarily trigger a bull market for US Treasuries. While the bull market in the US stock market's AI infrastructure construction has not turned bearish as a result of this report, its macroscopic position may upgrade from a "high-growth asset" to a critical cornerstone supporting the international capital circulation of the US, and US Treasuries face pressure from weakening structural demand overseas and rising term premiums. For global financial asset allocation strategies, this means that investors can no longer mechanically assume that "US stocks fall, US Treasuries must rise, and the US dollar will inevitably strengthen," and in the future, there may be a scenario where US stocks, long-dated US Treasuries, and the US dollar all come under pressure simultaneously.