The dollar’s long-term support is shifting from safe-haven debt demand toward more risk-sensitive technology and equity capital inflows

Overview

This report discusses three forces shaping the dollar’s long-term trajectory: first, geopolitics and technology are jointly changing the structure of U.S. external financing; second, U.S. tokenization and renminbi internationalization are creating trans-Pacific competition in financial infrastructure; and third, several Asian currencies have remained undervalued for an extended period, so whether they are revalued in the future will affect the balance of dollar strength. The report’s core conclusion is that the dollar is not simply weakening or strengthening; rather, its risk characteristics are changing. The countercyclical support previously provided by U.S. Treasuries and official reserve demand is partially giving way to more cyclical capital inflows driven by AI and U.S. equity performance.

Core views

The report believes weakening U.S. fiscal conditions contrasted with strong U.S. corporate earnings are encouraging overseas capital to flow more into U.S. equities than U.S. debt, making the dollar behave more like a risk asset. U.S. leadership in AI, stablecoins, and tokenized assets may continue to attract global capital. In Asia, however, the renminbi is increasing its international use through cross-border financing and policy tools, while Asian currencies are broadly inexpensive, potentially creating medium- to long-term rebalancing pressure on the dollar. China may have to pay a higher exchange-rate “price” under pressure from external markets; India is supported in the short term by FCNR instruments, but its long-term manufacturing prospects and the impact of AI on services remain to be tested; South Korea’s fundamentals are improving, but capital outflows are weighing on the won; and the yen is one of the greatest uncertainties.

Analysis framework

The report combines analysis of macro capital flows, the international-balance-of-payments financing structure, policy and geopolitical developments, currency valuation models, and regional case comparisons to assess changes in the dollar’s long-term risk-return characteristics. Its focus is not to provide a single exchange-rate point forecast, but to identify structural forces influencing the dollar-pricing framework.

Methodology notes

• Macro Foreign-Exchange StrategyInternational Capital-Flow Structure Analysis

  Rotation in external-deficit financing from debt financing to equity financing

  By comparing changes in equity and debt capital flowing into the United States, the report assesses whether the source of dollar support is shifting from countercyclical demand for U.S. Treasuries toward more cyclical equity and technology capital flows.

• Currency ValuationDB Currency Valuation Model

  Cheapness of Asian currencies

  The report cites the DB model to show that six of the ten cheapest currencies remain in Asia, supporting the view that Asian foreign exchange has potential for revaluation.

• Financial InfrastructureTokenization and Stablecoin Transmission Framework

  The network effects of the dollar financial system

  The report argues that stablecoins and tokenized assets could reduce friction for global capital entering the dollar financial system, thereby strengthening the appeal of U.S. capital markets.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• U.S. Dollar

  Core research subject

  Strengths

  AI capital flows, U.S. corporate earnings, stablecoins, and tokenized financial infrastructure may continue to attract global capital.

  Weaknesses

  Long-term foreign official-sector demand for dollar debt is declining, U.S. fiscal conditions are weakening, and the financing structure is becoming more dependent on cyclical equity flows.

  Comparison

  Compared with the dollar previously supported by demand for U.S. Treasuries, the dollar in the new phase may behave more like a risk asset.

  Risks

  If the AI trade cools, U.S. equities correct, or global demand for dollar debt continues to decline, downside and volatility risks for the dollar may increase.

• Renminbi

  Long-term competitive variable for the dollar

  Strengths

  Cross-border renminbi lending, financing, and the PBOC’s FIMA repo facility are advancing renminbi internationalization.

  Weaknesses

  The incomplete opening of the capital account remains a constraint of concern to Western investors.

  Comparison

  The United States attracts capital inflows through tokenization, while China promotes capital outflows through renminbi financing.

  Risks

  If external-demand pressures, policy pacing, or capital-account constraints limit the expansion of renminbi use, internationalization may fall short of expectations.

• Asian Currencies

  The inverse reflection of dollar strength

  Strengths

  Valuations are cheap, and currencies in several major economies have potential for revaluation.

  Weaknesses

  Capital outflows, policy constraints, and structural growth uncertainty continue to weigh on exchange rates.

  Comparison

  The combined weights of South Korea, Japan, India, and China make Asian foreign exchange more important to the dollar’s trajectory than the market typically recognizes.

  Risks

  If technology-related capital flows into the dollar remain strong, or Asian policymakers are unwilling to bear the cost of currency appreciation, the recovery of undervalued currencies may be delayed.

• Japanese Yen

  One of the greatest uncertainties in Asian foreign exchange

  Strengths

  Lower oil prices, extreme speculative short positions, and potential policy changes could create downward pressure on USD/JPY.

  Weaknesses

  The Japanese government’s emphasis on high nominal growth to reduce debt/GDP may imply greater tolerance for inflation and a weak yen.

  Comparison

  Compared with other Asian currencies, the yen is simultaneously affected by intervention, fiscal policy, industrial policy, and inflation tolerance.

  Risks

  If policy objectives favor maintaining high nominal growth and inflation tolerance, the yen’s recovery may be weaker than valuation signals suggest.

Key data

• Report date2026-07-07The report’s front page states Date 7 July 2026.
• DTCC tokenized real-world assets under custodyUSD115tnThe report states that DTCC began tokenizing its real-world assets under custody this month.
• Number of undervalued Asian currenciesSix of the ten cheapest currencies are in AsiaBased on the DB model.
• Combined foreign-exchange weight of South Korea, Japan, India, and ChinaGreater than the euro’s weight in the Fed’s broad dollar indexThis illustrates that Asian currencies are not marginal variables in the dollar index.
• Change in South Korea’s fundamentalsExports up 50%, equities nearly up 100%The report states that despite significant improvements in Korean exports and equities, capital outflows continue to weigh on the won.
• Yen valuation statusNear a 40-year low against the dollarThe report identifies the yen as one of the greatest uncertainties in Asian foreign exchange.

Impact & implications

If the report’s assessment is correct, the dollar may become more influenced by the U.S. technology cycle, equity capital flows, and financial innovation, rather than relying primarily on the safe-haven characteristics of U.S. Treasuries. Investors need to reassess the impact of unhedged dollar exposure, the recovery of undervalued Asian currencies, increased cross-border use of the renminbi, and changes in Japan’s policy mix on foreign-exchange portfolios.

Risks

• The dollar may become more cyclical because of equity capital flows and prove more vulnerable during a correction in risk assets.
• An excessive concentration of the AI trade could amplify the dollar’s sensitivity to the U.S. technology-equity cycle.
• Renminbi internationalization may be constrained by the capital account, policy pacing, and geopolitics.
• Cheap Asian currencies do not imply immediate appreciation; capital flows, central-bank policy, and external-demand conditions may delay the recovery.
• Foreign exchange, derivatives, and cross-currency investments involve exchange-rate volatility, liquidity, leverage, and counterparty risks.

What to watch

• Relative changes in foreign investors’ capital flows into U.S. Treasuries versus U.S. equities.
• The pace of U.S. stablecoin regulation, implementation of tokenized assets, and infrastructure development by DTCC and others.
• The volume of cross-border renminbi lending and financing, as well as use of the PBOC’s FIMA repo facility.
• Policy pressure from Europe regarding China’s competitiveness and currency undervaluation.
• India’s FCNR instruments, manufacturing outlook, and the impact of AI on services exports.
• Whether South Korean capital outflows can reverse amid strong exports and equity-market performance.
• The Japanese government’s high-nominal-growth strategy, BoJ policy, oil prices, and speculative positioning in the yen.