Deutsche Bank Warns of AI-Induced Volatility Impacting Bitcoin and Stocks
Deutsche Bank cautions that an AI-driven selloff could destabilize US stocks and the dollar, affecting Bitcoin and gold prices.
In a significant report that may shape market expectations, Deutsche Bank has raised alarm bells over potential repercussions of an AI-fueled selloff. The message is clear: this could destabilize both the US dollar and the stock market, two crucial components of the global economy.
Foreign Investments and the Current Account Deficit
According to recent evaluations, foreign investors currently hold over $20 trillion in US equities. Deutsche Bank's George Saravelos, who heads global FX research, explained that foreign ownership is a key factor in financing the US current account deficit, which represents the disparity between domestic spending abroad and earnings.
Saravelos highlights a striking point: approximately 90% of this enormous figure in foreign-held equities is due to price appreciation rather than genuine purchases. This means that the actual purchase activity is much lower than the total valuation reflecting stock price increases.
The Risks of Unhedged Positions
Typically, foreign investors have avoided currency hedging, driven by the historical trend where declining stock prices have generally led to a stronger dollar. However, Saravelos points out that this trend is vulnerable. If a market downturn begins in the US, a shift in behavior is likely as investors scramble to hedge their positions, leading them to sell dollars in the process.
This phenomenon echoed a previous incident following President Trump's tariff announcements in April 2025, where a similar pattern was witnessed. The Bank for International Settlements (BIS) noted that hedging efforts by international investors contributed to a decline in the dollar's strength.
Current Market Reactions
The market recently displayed volatility that raises questions about the interplay between the dollar and stocks. Major companies such as Intel significantly struggled, with shares dropping nearly 30% following a pessimistic earnings forecast, while Amazon also experienced losses alongside other tech giants.
Recent figures showed the S&P 500 Index fell by 1.28% mid-afternoon UTC. In contrast, despite losses in other areas, the US Dollar Index—which tracks the dollar against six primary currencies—had a slight increase of 0.09%. Gold prices fell by 2.44%, and Bitcoin also dropped, adding to the worry about these traditionally safe assets amidst market turbulence.
Indicators to Watch For
As Saravelos outlines, a keen indicator to monitor will be the performance of US real yields, which measure bond returns after inflation, along with trends in stock prices and the dollar's strength. A decline in these real yields, coupled with weaker stock performance and a declining dollar, would signify a market readjustment to lower AI investment expectations.
Despite the recent downturn, current trading conditions do not reflect this anticipated mix, as the dollar has shown resilience. Notably, Saravelos refrained from forecasting an outright crash, suggesting that the risks associated with the dollar are more nuanced than what has been factored into market sentiment lately.