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Deutsche Bank warned on Friday that an artificial intelligence-led selloff could simultaneously reduce US stock prices and the value of the US dollar, a scenario that would break the historical inverse correlation between the two assets.
The bank’s global head of FX research, George Saravelos, outlined the potential risks in a client note, indicating that foreign buying of US stocks now funds the entire US current account deficit. This deficit represents the gap between what the United States spends abroad and what it earns.
Foreign Ownership and Hedging Risks
Foreigners currently own more than $20 trillion in US shares. Saravelos noted that roughly 90% of this value is attributable to price appreciation rather than underlying buying. For years, foreign investors have skipped currency hedging because falling stocks typically lifted the dollar, which has traditionally acted as a safe haven during market downturns.
Saravelos stated that this hedging cushion flips when the shock originates in the US. In such a scenario, investors rushing to hedge their positions must sell dollars. The Bank for International Settlements (BIS) found that hedging by non-US investors contributed to the dollar’s slide following President Donald Trump’s April 2025 tariff announcement, known as Liberation Day.
Market Signals and Asset Performance
Saravelos identified falling US real yields, defined as bond returns after inflation, alongside weaker stocks and a weaker dollar as the specific signal to watch. This combination would indicate that markets are cutting AI spending forecasts. He emphasized that dollar risks are more two-sided than markets have priced in recent weeks, though he did not predict a crash.
On Friday, market data did not yet reflect the predicted mix. Intel fell nearly 30% following a weak forecast, and Amazon slid along with other tech names. The S&P 500 was down 1.28% by mid-afternoon UTC, according to TradingView data. However, the US Dollar Index (DXY), which tracks the dollar against six major currencies, edged up 0.09%.
Gold dropped 2.44% while Bitcoin traded lower on the day of the report. Both assets rank among 2026’s worst major assets, despite gold having its best month since 1999 in August. Bitcoin and gold had both rallied in August due to a weaker dollar and Federal Reserve rate bets. Deutsche Bank’s reported comments did not specifically address Bitcoin or gold.
Frequently Asked Questions
What is the specific signal Saravelos says to watch?
Saravelos identified falling US real yields alongside weaker stocks and a weaker dollar as the signal that markets are cutting AI spending forecasts.
Did Deutsche Bank predict a market crash?
No, Saravelos did not predict a crash, but stated that dollar risks are more two-sided than markets have priced in recent weeks.
