The dollar's recent rise has surprised many investors. At around 102, the DXY dollar index sits at its highest level since spring last year. Much of this climb reflects rising Treasury yields and falling dollar hedging, but AI also plays a role.
Rob Subbaraman at Nomura explains the logic simply: the AI trade has drawn enormous global investment, leaving the world very long dollars. US NIIP liabilities have ballooned due to net capital inflows and extraordinary capital gains from the AI-driven US equity boom. By 2025, the ratio of US NIIP liabilities to all rest-of-world net creditor nations' NIIP assets reached 80 per cent.
This concentration is fragile. If the AI trade falters—whether from vanishing moats, monetisation issues, or legal troubles—non-US investors would likely sell AI assets and, consequently, dollars. Geoff Yu at BNY notes dollar hedging levels have collapsed. A reversal in hedging or a market knock could trigger significant dollar selling, a scenario the dollar may not handle well.
Source: Financial Times Markets · Summarized by HeadlinesBriefing