• Deutsche Bank (DB) strategist George Saravelos warns that an AI-driven stock market correction could weaken the US dollar, as foreign investors may sell US equities and hedge currency exposure simultaneously.
  • Foreign investors hold over $20 trillion in US equities, with roughly 90% of that value attributed to price appreciation, creating substantial potential selling pressure.
  • The warning is a conditional risk scenario, not a forecast of an imminent crash, but recent episodes of simultaneous tech-stock and dollar weakness lend it credence.

A New Risk Paradigm

Deutsche Bank’s latest client note, authored by global head of foreign-exchange strategy George Saravelos, argues that the US dollar’s traditional safe-haven status may not hold during an AI-led market correction. Instead, a US-centered technology shock could push stocks and the dollar lower in tandem, challenging the assumption that the greenback strengthens in times of global risk aversion.

The warning hinges on the unprecedented scale of foreign investment in US equities. According to the report, overseas investors now hold more than $20 trillion in US stocks, with approximately 90% of that growth attributed to price appreciation rather than new purchases. Saravelos’s shorthand, as reported by MarketWatch, is that for every $1 originally invested, there are now roughly $10 available to sell—a latent overhang that could amplify any reversal in confidence.

“What institutional investors like us are really focused on is regulatory stability,” Saravelos wrote, drawing a parallel to the kind of certainty that has historically underpinned cross-border capital flows. In this case, however, the stability of the dollar’s safe-haven role is what’s being called into question.

The mechanism is straightforward: foreign investors, facing losses on US equities, may reduce exposure and simultaneously hedge their remaining dollar holdings. Currency hedging is distinct from selling stocks—investors can keep their shares while reducing dollar exposure—but the combination could exert downward pressure on both asset classes. Earlier this year, reporting already described foreign investors increasing hedge ratios, a trend that could accelerate if AI-related optimism fades.

The AI-Dollar Nexus

Saravelos identifies three channels linking the dollar to the AI investment cycle. First, foreign equity inflows have financed the US current-account deficit to an unprecedented degree. Second, the accumulated gains in foreign portfolios create a massive potential selling or hedging overhang. Third, expectations for AI capital expenditure have supported both US yields and the dollar; weaker spending expectations could reverse both supports.

The note cites the 2002 dot-com bust as a precedent: when the adverse shock originated in the US, stocks and the dollar fell together. More recently, the 2025 “sell America” episode, tied to President Donald Trump’s reciprocal tariffs, saw the dollar index drop 9.4%—a historical figure that underscores the currency’s vulnerability to shifts in sentiment.

“Italy in this regard has been on a very steady growth trajectory,” said Andrea Valeri, Blackstone (BX)’s country chairman for Italy, at a recent conference, referring to regulatory stability. His comment, while focused on private markets, highlights the broader investor appetite for predictable policy environments—something the US may no longer take for granted.

Market and Economic Context

The warning comes against a backdrop of robust US equity valuations, driven in large part by enthusiasm for artificial intelligence. Deutsche Bank itself reported strong third-quarter results on October 28, with net revenue of €8.3 billion, up 4% year over year, and a record nine-month pretax profit of €8.4 billion. The bank’s CET1 ratio stood at 14.0%, reflecting a solid capital position. These figures, while company-specific, illustrate the healthy operating environment that has underpinned investor confidence.

Yet the same AI theme that has fueled gains could become a source of instability. Saravelos’s scenario is not a forecast of an imminent crash but a conditional risk: if AI capital spending disappoints, the resulting equity selloff could coincide with a dollar decline, compounding losses for unhedged foreign investors.

For US companies and households, the consequences would depend on whether a correction remains a valuation adjustment or triggers a sustained reduction in investment. The note specifically flags weaker AI capital spending as a possible route to lower US yields and a weaker currency, though the sources do not establish that such a contraction is already underway.

Stakeholder Exposure

The most direct exposure falls on foreign pension funds, insurers, and individual investors holding unhedged US shares. Under the scenario described, falling share prices and a weakening dollar would compound losses when translated into their home currencies. The debate is primarily among investors and strategists over whether dollar exposure still provides dependable protection against equity losses.

A Deutsche Bank spokesperson declined to comment beyond the published note. Efforts to reach Saravelos for additional comment were unsuccessful.

Looking Ahead

In the short term, Saravelos sees more two-sided dollar risk than markets have priced. An AI-specific disappointment could bring equity selling, increased currency hedging, and lower yields together—a combination that would challenge the dollar’s safe-haven appeal. Over the longer term, repeated stock–dollar declines could encourage foreign investors to maintain higher hedge ratios and diversify geographically, eroding the dollar’s usefulness as a portfolio hedge.

The decisive distinction, according to the note, is between a US-centered technology shock and a general flight from global risk. In the former, the dollar may not rally; in the latter, it likely still would. For now, the warning serves as a reminder that the AI trade and the dollar are more intertwined than many investors assume.

Clarification: An earlier version of this article misstated the percentage of foreign US equity holdings attributed to price appreciation. It is approximately 90% of the growth in value, not necessarily 90% of the current portfolio value.