The "AI dollar era" has arrived, and Deutsche Bank warns that the dollar's safe-haven status may not be secure.

Deutsche Bank says the dollar's safe-haven status should not be taken for granted during an AI-driven market correction. George Saravelos, the bank's global head of FX strategy, said in a note to clients on Friday that the risks facing the dollar are "far more complex than the market has priced over the past few weeks." He added that the recent simultaneous weakness in tech stocks and the dollar supports this view. One reason is the unprecedented scale of foreign investors' holdings of U.S. equities. Saravelos noted that overseas investors currently effectively finance the entire U.S. current account deficit. But their holdings growth has come mainly from valuation gains rather than new buyingDeutsche Bank estimates that of the more than $20 trillion in U.S. stocks held by foreign investors, about 90% reflects price appreciation. Another key factor is the shifting dynamics of equity hedging. Over the past decade, U.S. stocks and the dollar have been negatively correlated, making it very easy for investors to choose not to hedge currency risk. But when the equity shock originates in the U.S., this relationship flips to positive correlation, with the dollar and stocks falling in tandem, thereby amplifying foreign investors' equity losses. Further evidence that the dollar is losing its safe-haven attribute is the simultaneous decline in U.S. real yields and stock prices. Saravelos believes this year's rise in interest rates and stock prices is related to strengthened expectations for AI-related capital expenditure. "A simultaneous decline in U.S. real yields and the stock market would be consistent with these expectations being revised lower," he noted. Saravelos said that while he does not make judgments on the outlook for the AI ecosystem, the change in the relationship between risk assets and the dollar deserves more attention. "The AI dollar era has arrived," the report said.