Foreign capital continues to flow into large U.S. tech stocks, bonds of cloud service companies, and power grid infrastructure, making the connection between the dollar and the AI investment cycle even tighter. According to Reuters, recently when the valuation of AI was under pressure, safe-haven funds flowed more towards the Japanese yen and Swiss franc, and the dollar did not receive the same support.

The US dollar has not yet shown a sustained weakening trend. What the market is truly concerned about is whether, if there is a sustained reversal in AI trading, whether this adjustment in the US stock market will further affect credit, growth, and interest rates, and whether it will change the previous safe-haven logic of the US dollar.

According to Reuters, the scale of foreign capital flowing into U.S. stocks has reached record levels, but foreign direct investment is relatively lagging behind. This means that the new capital comes more from institutional investments that can quickly adjust their positions, rather than long-term real estate investments.

Eric Nelson, head of global foreign exchange strategy at Wells Fargo, refers to this type of capital as "hot money" that is sensitive to prices. Noah Baffam, a foreign exchange strategist in capital markets at Imperial Bank of Canada, pointed out that the AI investment boom has boosted expectations for U.S. growth and interest rates, which has also become an important support for the strengthening dollar.

However, when the valuation of AI came under question, market reactions began to change. Recently, more hedging funds have flowed into the Japanese yen and Swiss franc, while the performance of the US dollar has been relatively limited, drawing more attention to its sensitivity to US tech assets.

Dominic Bunning, the head of foreign exchange strategy at Nomura G10, stated that if the AI trade reverses, it is no longer so certain whether the US dollar will continue to receive safe-haven support as it has in the past. However, investors still tend to buy on dips at present, and a real and sustained withdrawal of funds may take several months or even years.

Interest rate advantages remain an important support for the US dollar. Goldman Sachs' research on nine tightening cycles since 1983 shows that the US dollar typically strengthens before the first interest rate hike, but its performance after the hikes is not consistent. The key lies in the economic reasons behind the interest rate path.

If inflation improves and growth remains resilient, risky assets may continue to benefit; if policy shifts are due to weak growth, the performance of stocks and the US dollar will be affected in a more complex manner.

This is also the main transmission path through which the investment returns of AI affect the US dollar. If companies cut back on capital expenditures, the growth prospects for the United States may decline; and if the Federal Reserve then turns to interest rate cuts, the yield advantage of the US dollar will also narrow.

Nelson pointed out that the adjustment of tech stocks alone is not sufficient to determine the direction of the dollar. After the Nasdaq peaked in March 2000, the dollar remained strong for nearly two years, until corporate failures, pressure on the credit market, and changes in the global growth pattern led to a clear weakening of the dollar.

Therefore, the market is more concerned about whether the adjustments to AI will evolve into a credit issue for the United States itself. If investments in data centers and infrastructure fail to generate returns, the credit spreads of highly indebted companies may widen, forcing them to cut back on capital expenditures, which in turn will further affect demand for hardware, industrial equipment, and energy.

Localized pressures have already emerged. Reuters reports that recently, the credit default swap spreads of some highly leveraged new cloud service companies have significantly widened. Sean Osborne ( Shaun Osborne ), the chief foreign exchange strategist at BNP Paribas, stated that there are signs of stress in the credit market.

However, if the impact further evolves into global dollar financing tensions, the dollar could still regain buying interest. Similar situations occurred in 2008 and March 2020: investors bought dollars en masse to repay their dollar-denominated liabilities, which temporarily drove up the value of the dollar.