Wall Street Warns of Dollar's "False Safe Haven": If the AI Narrative Collapses, Global Capital Could Stampede for the Exits

Cailian Press Financial News Agency

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Cailian Press, Xiaoxiang, Editor-in-Charge Lin Qi, 2026-10-28 14:17

① Industry insiders pointed out that once a crack appears in the AI growth narrative, the dollar's status as a safe-haven asset may come into conflict with its increasingly prominent role as a risk-sensitive asset; ② This global reserve currency is currently being held increasingly by price-sensitive investors.

Cailian Press, October 28 (Editor: Xiaoxiang) — For a long time, whenever markets have been turbulent, investors have habitually treated the dollar as a safe haven; however, many Wall Street figures are now worried that, as overseas capital has poured in heavily in recent years chasing returns from the AI wave, once this trading frenzy is unwound and the tide recedes, the dollar's traditional safe-haven attributes may be called into serious question.

Over the past few years, a large amount of foreign capital has continued to flow into U.S. tech giants, the corporate bonds of hyperscale cloud service providers, and supporting power grid infrastructure. Supported jointly by strong economic growth, high yields, and robust demand for U.S. assets, the dollar has increasingly evolved into a crowded trade betting on "American exceptionalism."

But industry insiders pointed out that once a crack appears in the AI growth narrative, the dollar's status as a safe-haven asset may come into conflict with its increasingly prominent role as a risk-sensitive asset — this global reserve currency is currently being held increasingly by price-sensitive investors. If a sustained selloff occurs in U.S. stocks, it could trigger large-scale reductions in investors' holdings of U.S. assets, thereby completely overwhelming safe-haven bids for the dollar.

Dominic Bunning, head of G10 FX strategy at Nomura Securities, pointed out that once the AI trade recedes, "whether the dollar can continue to reap safe-haven benefits as it has in the past will be full of uncertainty."

FX Flows Have Already Issued a "Storm Warning"

In the foreign exchange market earlier this month, early warnings had in fact already been issued.

Kevin Ford, chief FX and macro strategist at Convera, said: "Once the AI trade comes under market scrutiny, its linkage with the dollar's movements will be exposed for all to see."

Looking at flow data, foreign funds flowing into U.S. equities have now hit a record high, while foreign direct investment has lagged relatively. This means most of the dominant capital comes from institutional asset allocators, and once they reassess U.S. growth prospects, the interest rate path, or tech stock valuations, they could reverse course and close positions at any time.

Erik Nelson, head of global FX strategy at Wells Fargo, compared these capital allocations to the "hot money" flows that dominate emerging markets. Analysts at the bank said the AI boom has reinforced market expectations of stronger U.S. economic growth, firmer inflation, and higher interest rates, thereby driving the dollar and U.S. Treasury yields higher in tandem.

But once investment returns fall short of expectations, a wave of position unwinding could hit U.S. stocks, the bond market, and rate expectations simultaneously, leaving the dollar battered on all three fronts:

First, slower growth could force the Federal Reserve into sharp rate cuts, eroding the dollar's yield advantage; second, a slowdown in domestic capital expenditure would puncture the aura of "American exceptionalism"; and finally, fading institutional interest in U.S. corporate bonds and U.S. stocks would shake the dollar's most critical structural funding support.

Although investors have so far remained keen on "buying the dip," this more likely means the dollar's weakening will not happen overnight, but may instead be a gradual process lasting months or even years.

More Severe Than the Dot-Com Bubble?

Nelson said a sharp U.S. stock selloff alone may not automatically drag down the dollar — after the Nasdaq peaked in March 2000, the dollar remained firm for nearly two years, only beginning to weaken when corporate failures such as WorldCom pressured the U.S. credit market, combined with other factors such as a recovery in global economic growth.

Nelson noted that, based on data since 1973, the dollar's real trade-weighted index has remained above its long-term average for 12 consecutive years, the longest streak on record. Compared with 2000, foreign capital inflows are also more concentrated in U.S. equities and corporate bonds, while foreign direct investment has been weaker.

Once massive infrastructure investment fails to deliver reasonable returns, credit spreads may widen sharply, forcing AI giants to cut capital expenditure. Such contraction will transmit outward along the industrial chain, in turn hitting overall demand for industrial equipment, hardware, and electric power and energy.

Concerns about high-risk segments of the AI industrial chain — such as heavily indebted new cloud computing power company CoreWeave — have recently caused credit default swap (CDS) spreads to surge sharply, further intensifying downward pressure on tech stocks.

Shaun Osborne, chief FX strategist at Scotiabank, pointed out: "From the anomalies in CDS, we can already sense that the outer line of defense is beginning to loosen."

More severe still, compared with the U.S. fiscal surplus at the peak of the dot-com bubble in 2000, Washington now faces a high fiscal deficit, and without destabilizing the Treasury market, the U.S. government's room to shore up the economy through countercyclical fiscal stimulus has become extremely narrow.

Sensitivity Under Pressure

For Nelson, in the long run, the key signal lies not only in whether U.S. tech stocks fall, but also in whether the pressure escalates into U.S.-specific credit and growth problems, thereby changing market expectations for Federal Reserve policy.

In that case, the yen may benefit at the expense of a weaker dollar, and such a shift could have further effects on a market that may already be under pressure.

This does not mean that a weaker dollar is a foregone conclusion—if the shock is severe enough to trigger a scramble for dollar funding, the dollar could actually strengthen initially. In 2008 and March 2020, investors rushed to obtain dollars to repay dollar-denominated debt, creating a strong but short-lived wave of buying.

But in any case, many industry insiders believe that the dollar has once again become the most central risk variable in the global macro landscape, drawing attention at its highest level since the market turmoil triggered by the Trump administration's announcement of sweeping tariffs in April 2025.

"Global investors are extremely sensitive to a major repricing or sell-off of the dollar," Nelson said. "As we move into 2027, I think this is a vulnerable point for the dollar and worth watching."

Global Market Intelligence

The Global Wave of De-dollarization

Cailian Press statement: The content of this article is for reference only and does not constitute investment advice. Investors who act on it do so at their own risk.

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Wall Street Warns of Dollar's "False Safe Haven": If the AI Narrative Collapses, Global Capital Could Stampede for the Exits

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