Investing.com — Structural shifts in global capital flows, technological innovation, and geopolitics are reshaping the U.S. dollar’s long-term outlook, Deutsche Bank said in a research note.
One of the biggest changes is in how the U.S. finances its external deficit. Foreign official demand for U.S. debt has weakened amid rising geopolitical tensions, while investment in U.S. technology companies has attracted substantial equity inflows from global investors.
The report said the divergence between declining official purchases of dollar-denominated debt and rising private equity inflows has reached record levels, making the dollar increasingly dependent on risk-sensitive capital rather than traditional reserve demand.
It also highlighted contrasting trends emerging across the U.S. and Asia. Discussions with investors on the U.S. West Coast centered on blockchain technology and tokenization, which could further reduce barriers to investing in American financial assets. In Asia, attention has been focused on China’s efforts to expand the international use of the renminbi, a trend that remains underappreciated in many Western markets.
Both developments have the potential to reshape global capital flows over the coming years, according to the note.
The report also identified Asia as home to many of the world’s most undervalued currencies, with six of the ten cheapest currencies in its valuation models located in the region, including several major industrial economies.
China is expected to continue playing an important role in regional foreign exchange markets as geopolitical pressure from Europe increases. Greater uncertainty surrounds Japan, where investors are closely watching how the yen responds to the government’s industrial, fiscal and economic agenda.
The note said these structural shifts suggest investors should pay closer attention to evolving global capital flows rather than relying solely on traditional drivers of the dollar’s performance.
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