Slowing AI Boom Sparks Warning of Dollar Weakening and Higher Yields

A report by Nuvama suggests that a slowdown in the global AI capital expenditure boom could lead to a shift in balance-of-payments stress from Asia to the US.

The report notes that Asian savings have been invested in US equities, particularly through the AI-led investment cycle, which has supported the recent US current account deficit and strength of the dollar.

If the AI capex cycle falters, Asian exports could weaken while capital currently invested in US assets could flow back to the region.

This shift would narrow both the US deficit and Asian trade surpluses, but it could leave the US facing greater balance-of-payments pressure, resulting in a weaker US dollar and higher Treasury yields despite slower economic growth.