{
  "id": 16851883,
  "title": "AI worries expose dollar’s hot-money problem",
  "url": "https://urgent.news/2026/10/28/ai-worries-expose-dollars-hot-money-problem-16851883",
  "topic": "ai",
  "section": "AI",
  "published": "2026-10-28T04:21:26.000Z",
  "source": {
    "name": "Free Malaysia Today",
    "slug": "free-malaysia-today",
    "url": "https://www.freemalaysiatoday.com/category/business/2026/10/28/ai-worries-expose-dollar-s-hot-money-problem"
  },
  "original_language": "en",
  "account": "Foreign investment in US equities has reached a record high, while direct investment remains stagnant, making the flows susceptible to shifting market expectations. Investors have traditionally viewed the US dollar as a safe haven during market downturns, but the influx of capital from AI-driven growth initiatives could undermine this role if the trend reverses. This surge of foreign capital has poured into US mega-cap equities, hyperscaler corporate bonds, and power-grid infrastructure, positioning the dollar as an increasingly popular bet on American exceptionalism. However, if the AI narrative falters, the dollar's safe-haven status might clash with its emerging role as a risk-sensitive asset. A sustained stock market sell-off could trigger investors to sell US assets, potentially overwhelming the currency's safe-haven appeal. If the AI trade were to unwind, the dollar's benefits might not be as pronounced as they once were, notes Dominic Bunning, head of G10 FX strategy at Nomura. Recent developments have already signaled a potential vulnerability. When AI valuations faced pressure, investors turned to the Japanese yen and Swiss franc, as the greenback managed only modest gains against the euro, largely due to concerns over French civil unrest. The relationship between the AI trade and the dollar has become more apparent when the former faces scrutiny, according to Kevin Ford, lead FX and macro strategist at Convera. Foreign flows into US equities are at a record, while foreign direct investment has lagged. As a result, the capital is predominantly coming from institutional allocators who may adjust their positions based on reassessments of US growth, interest rates, or tech valuations. Analysts liken these allocations to \"hot money\" flows that are prevalent in emerging markets. The AI boom has fueled expectations of robust US growth, higher inflation, and higher interest rates, which has helped the dollar rally alongside Treasury yields, according to Noah Buffam, FX strategist at CIBC Capital Markets. Should returns fall short of expectations, an unwinding could impact equities, credit, and interest rates, leaving the dollar exposed on multiple fronts. Slower domestic investment could challenge the exceptionalism narrative, while fading institutional demand for US corporate bonds and equities would weaken a key source of structural support. So far, investors have shown willingness to buy dips, suggesting that any sustained weakness might unfold over months or years. The dotcom lesson offers a cautionary tale. After the Nasdaq peaked in March 2000, the dollar remained strong for nearly two years before weakening when US credit markets faced stress following corporate scandals and other factors, such as a global growth recovery. However, the AI buildout is more distinctly US-focused. Since 1973, the trade-weighted dollar has consistently remained above its long-run average, the longest streak on record. Foreign inflows have also become more concentrated in equities and corporate bonds compared to 2000, while foreign direct investment has weakened. Should infrastructure investments fail to deliver, credit spreads could widen, forcing AI companies to curtail capital spending, which could reverberate through the economy, dampening demand for industrial equipment, hardware, and energy. Concerns about riskier aspects of the AI sector, including heavily indebted neocloud firms like Core Weave, have already widened credit default swap spreads, adding pressure on stocks. The broader fiscal deficit in Washington, compared to the surplus near the 2000 tech peak, leaves less room for counter-cyclical stimulus without destabilizing debt markets. For Nelson, the critical indicator is not merely the decline in US tech shares but whether stress escalates into a US-specific credit and growth issue that could alter expectations for Federal Reserve policy. In such a situation, the yen might gain ground against the dollar, potentially affecting other markets already under stress. While a dollar decline is not a foregone conclusion, some investors believe the dollar is once again a significant risk factor, comparable to the 2008 financial crisis and the March 2020 market rout triggered by former President Donald Trump's announcement of sweeping tariffs.",
  "summary": "Heavy foreign investment in US assets has made the dollar vulnerable if AI optimism fades and investors sell off stocks.",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 3,
    "also_reported_by": [
      {
        "outlet": "Channel News Asia",
        "title": "AI worries expose dollar's hot-money problem",
        "url": "https://urgent.news/2026/10/28/ai-worries-expose-dollars-hot-money-problem",
        "published": "2026-10-28T04:03:29.000Z"
      },
      {
        "outlet": "Investing.com",
        "title": "AI worries expose dollar’s hot-money problem",
        "url": "https://urgent.news/2026/10/28/ai-worries-expose-dollars-hot-money-problem-16846409",
        "published": "2026-10-28T04:30:46.000Z"
      }
    ]
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}