Shift from Treasury Bonds to Foreign Equity Flows Raises Dollar Risk, Deutsche Bank Warns

Deutsche Bank’s foreign-exchange strategist Mallika Sachdeva warned on July 9 2026 that the United States is now financing a larger share of its external deficit through foreign equity purchases rather than through purchases of U.S. Treasury securities. The move, she argues, erodes the historic “bond-market buffer” that traditionally supported the U.S. dollar (DXY) during periods of global risk aversion.

A warning for the U.S. dollar: The historic bond-market buffer that protected the currency is fading.

Geopolitical tensions have dampened appetite for U.S. debt, while the rapid expansion of artificial-intelligence-related equities has attracted short-term, retail-driven capital. At the same time, Europe’s push for “strategic autonomy” in defense and energy, and the ease with which Asian retail investors—particularly in Korea and Japan via the Nippon Individual Savings Account scheme—can access U.S. stocks, are redirecting flows toward equities. The United States faces a current-account deficit of roughly $1.12 trillion and a trade deficit near $1 trillion in 2025, making foreign capital essential to fund its fiscal gap.

A warning for the U.S. dollar: The historic bond-market buffer that protected the currency is fading.

Deutsche Bank’s analysis contends that the long-standing counter-cyclical demand for Treasuries, which once allowed the dollar to act as a safe-haven asset, is waning. Reserve Bank of Australia Deputy Governor Andrew Hauser has echoed this sentiment, noting that the shift away from “exorbitant privilege”—the ability of the U.S. to borrow cheaply because the dollar is the global reserve currency—could alter the dollar’s risk profile.

Reuters

• “Treasuries has tended to be countercyclical, supporting the dollar in times of recession or risk asset correction.” — Mallika Sachdeva, Deutsche Bank strategist

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• “A shift to more cyclical, retail=driven equity funding should make the dollar both more risky and more leveraged to AI," she said.” — Mallika Sachdeva

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• “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.” — Mallika Sachdeva

A warning for the U.S. dollar: The historic bond-market buffer that protected the currency is fading.

The combined weighting of cheap Asian currencies—Japan, India, China and Korea—in the dollar index now exceeds that of the euro, potentially pressuring the DXY further. While the dollar has recovered roughly half of its 2025 decline, boosted by geopolitical uncertainty and expectations of Federal Reserve rate hikes, the growing reliance on volatile equity inflows could make future dollar strength more fragile.

Reuters