By Jules RimmerThe U.S. is now funding itself more through foreign equity flows than debt flowsThe U.S. dollar is caught in a crossfire.
The problem posed for the dollar DXY, by these two opposing forces, is that equity flows are short-term and volatile, while inflows to fixed-income products tend to be more long term and stable.
Less investment friction probably means more investment, Sachdeva implies.
-Jules RimmerThis content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires07-09-26 0752ETCopyright (c) 2026 Dow Jones & Company, Inc.
By Jules Rimmer
The U.S. is now funding itself more through foreign equity flows than debt flows
The U.S. dollar is caught in a crossfire.
The geopolitical rupture caused by strategic shifts in American foreign policy is crimping appetite for U.S. Treasurys. At the same time, though, America's technological supremacy is attracting enormous amounts of investment capital into its equity markets.
The problem posed for the dollar DXY, by these two opposing forces, is that equity flows are short-term and volatile, while inflows to fixed-income products tend to be more long term and stable. Moreover the gap between these two impulses is widening.
The U.S. is now funding itself more through foreign equity flows than debt flows
The warning about the dollar's rising risk profile was sounded by Deutsche Bank's forex strategist, Mallika Sachdeva, in a special report published Tuesday. She advances the argument that previously demand for U.S. government debt was countercyclical and bolstered the dollar in times of recession or risk asset turbulence.
As a result, when buying U.S. assets, that exposure could be unhedged; there was no urgent requirement for an Asian buyer of thirty-year bonds BX:TMUBMUSD30Y to sell the dollar forward as a means of protecting returns. This mindset is changing, Sachdeva believes.
Furthermore, Sachdeva describes how parts of the world like Europe are building what she calls "strategic autonomy" with increased spending on defense and energy, and as a consequence, this will "necessitate a draw on savings held in the dollar."
Sachdeva draws attention to one fascinating insight: while America's public finances are deteriorating (with the national debt well on the way to $40 trillion), U.S. corporate profitability is surging, and so for investors stocks look more appealing than Treasury bonds.
This trend has been provided with additional impetus by the ease with which overseas retail investors can now access U.S. stock markets. Sachdeva highlights the Korean retail investors ploughing capital into U.S. equities and a similar pattern in Japan, facilitated by the Nippon Individual Savings Account scheme. Less investment friction probably means more investment, Sachdeva implies.
While visiting Deutsche Bank clients in the U.S. and Asia, Sachdeva noted other macro trends that are of huge significance for currency markets. First, West Coast investors were very bullish on the prospects for both AI and the adoption of blockchain technology. Innovations in the latter may strengthen the dollar, attracting capital via stablecoins and tokenization.
On the other hand, out in Asia, investors relate that the Chinese government's ambitions to internationalize the renminbi (USDCNY) are having an impact that isn't fully recognized at present.
China is internationalizing the RMB by exporting and increasing access to RMB capital
One more remaining factor may undermine the dollar in the future, Sachdeva predicts: it's the fundamental cheapness of Asian currencies.
Deutsche Bank's proprietary models screen for inexpensive currencies and of the top ten, six are Asian. These are not economic minnows either; it's the likes of Japan, India, China and Korea. While the outlook for the yen (JPYUSD) , renminbi, rupee (USDINR) and won (USDKRW) is complicated in all instances, their combined weighting in the broad dollar index is bigger than the euro's (EURUSD).
-Jules Rimmer
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
07-09-26 0752ET
Copyright (c) 2026 Dow Jones & Company, Inc.
