Structural changes in global funding flows and equity demand are redefining the USD’s role in portfolios, analysts argue.
The US dollar is evolving from a traditional safe-haven asset into a risk-driven instrument, driven by shifting global capital flows. Foreign demand for US government debt is declining as nations prioritize strategic autonomy in defense and energy, reducing dollar-denominated savings holdings.
Meanwhile, foreign equity inflows into the US are surging, with retail investors in Asia increasingly buying into the S&P 500. The gap between rising equity inflows and falling long-term debt inflows is at record levels, reflecting a divergence between corporate profits and fiscal deterioration.
This transformation could accelerate as AI-driven productivity boosts corporate earnings while governments face rising redistributive pressures, altering the dollar’s risk profile.