The next big test for the US dollar may come not from the Federal Reserve, but from the artificial intelligence trade. The AI boom has drawn foreign capital into US mega-cap stocks, hyperscaler bonds and the infrastructure powering the technology revolution. Those flows have supported the dollar by reinforcing expectations of stronger US growth, higher interest rates and continued demand for American assets.
But what happens if the trade reverses? The same capital that has been flowing into the US could begin moving out, weakening demand for the dollar. And unlike earlier market crises, when investors rushed towards the greenback, this time the selloff could be centred on US assets themselves.
For India, which has been overlooked as global investors chased AI-linked opportunities in the US and parts of Asia, the reversal could offer a chance to regain foreign capital.
The argument is no longer confined to market speculation. Most experts believe that the foreign money chasing returns from the AI boom could weaken the dollar's traditional safe-haven role if the trade unwinds. “The dollar will most certainly not benefit in the same way it did in the past global crisis’,” says Ritesh Jain, Founder, Pinetree Macro, a hedge fund based in the United States.
The scale of the capital concentration is central to the dollar-bearish argument.