Deutsche Bank: Rising USD Risks as Foreign Capital Inflows Shift Toward Equity
Alina Collins
Deutsche Bank warned on July 9 that foreign capital funding America's deficits is shifting from Treasuries to equities, meaning the dollar's stability now hinges on how long the AI boom lasts rather than on traditional safe-haven demand.
How America plugs its deficits is changing — what's different now?
The U.S. runs a current-account deficit of roughly $1.12 trillion and a trade deficit of about $1 trillion a year — both require steady foreign inflows.
Foreign capital used to arrive mainly as Treasury purchases (debt financing). Now an increasing share flows into U.S. equities (equity financing), driven by the AI investment wave.
This means → the pipeline funding America has gone from a steady one to one that swings with market sentiment.
Why does it matter whether foreigners buy bonds or stocks?
Strategist Mallika Sachdeva noted that foreign Treasury demand is counter-cyclical — it rises when the economy weakens, providing a floor for the dollar in downturns.
In plain terms = bond money acts like insurance — it shows up when things go wrong. Equity money acts like a tailwind — it arrives in good times and leaves in bad.
This reflects a fading "automatic stabiliser" for the dollar: if the AI narrative cools, equity capital may exit simultaneously, removing the counter-cyclical cushion the dollar once relied on.
Is the "exorbitant privilege" eroding?
Reserve Bank of Australia Deputy Governor Andrew Hauser warned earlier this year that the debt-to-equity shift signals the U.S. is drifting away from its "exorbitant privilege" — the ability to borrow almost without limit thanks to the dollar's reserve-currency status.
This means → the dollar is not losing its status overnight, but the terms of borrowing are changing — from "borrow freely" to "keep your stock market attractive enough."
Geopolitical fractures are further dampening foreign appetite for Treasuries, accelerating the shift.
The dollar is rebounding — how do the short and long term square?
In the short run, the dollar has clawed back roughly half of its nearly 10% decline in 2025, buoyed by uncertainty from U.S.–Israeli military action against Iran, expectations of a possible Fed rate hike, and capital flooding into AI plays.
Deutsche Bank stresses: the short-term bounce does not alter the structural concern.
In plain terms = the dollar is rising right now precisely because a hot AI market is pulling in equity capital — the very "unstable pipeline" Deutsche Bank worries about. If AI cools, the same force works in reverse.
Content is for reference only, not financial advice.