The AI craze is "siphoning" global capital. Has AI already "bottomed out" the US dollar?

Trillions of dollars in AI infrastructure investment by US technology companies are reshaping global capital flows, and this enterprise-level upheaval has evolved into a key supporting factor for the US dollar. Although this dynamic has not yet fully entered the mainstream narrative of the foreign exchange market, its boosting effect on the US dollar is quietly emerging.

American tech giants have significantly raised their expectations for AI-related capital expenditures. According to the Chui Feng Trading Desk, Barclays stated in its research report on the 9th that its spending forecast for 2025 has risen from hundreds of billions of US dollars over a year ago to approximately 500 billion US dollars. The total investment scale in the next five years will exceed 3 trillion US dollars, which, in some estimates, is equivalent to more than 10% of GDP. These investments are absorbing capital from around the world through channels such as corporate bond issuance.

This trend has begun to show in macro data. In the first two quarters of 2025, the contribution of investment projects to the US GDP rose to an annualized rate of 1 percentage point per quarter, the highest level since 2023. The sentiment indicator of the US dollar has now turned positive, indicating that the market's view of the US dollar is improving.

Barclays believes that these developments have strengthened its previous judgment that the US dollar may have bottomed out. Although the narrative of the foreign exchange market still focuses on data deficiency and the risk of government shutdown, the growth resilience brought about by the AI investment boom, the revaluation of interest rate expectations, and global capital inflows are forming a "silent support" for the US dollar.

The scale of AI investment has expanded beyond expectations, driving the US dollar to bottom out

The AI capital expenditure expectations of US technology companies have been significantly raised in the past few months. More than a year ago, the market's expectation for AI-related spending in 2025 was only several hundred billion US dollars. This figure has now climbed to approximately 500 billion US dollars, and the total investment scale in the next five years is expected to exceed 3 trillion US dollars. By partial estimation, this is equivalent to more than 10% of the US GDP.

This investment boom has begun to have a substantive impact on the macroeconomy. In the first two quarters of 2025, the contribution of investment to the US GDP rose to an annualized rate of 1 percentage point per quarter, marking the first time this level has been reached since 2023.

The economic output resilience brought about by AI investment is reshaping market expectations. Barclays pointed out that although the base effect may imply that the role of investment in driving growth will weaken at some point next year, AI investment is still in an accelerating phase at present. This accelerated growth has been accompanied by the outstanding performance of US assets, providing support for the US dollar.

Furthermore, the multiplier effect of investment spending may push interest rate expectations to continue to face reality tests. The market's previous expectation of a significant slowdown in economic growth may be hard to achieve, which means the probability of a deep interest rate cut cycle by the Federal Reserve has decreased. This part of the output resilience has also driven the repricing of policy interest rate expectations, helping the US dollar stop falling and stabilize. Barclays' dollar sentiment index has now turned positive.

Corporate bond issuance siphons global capital

One underestimated dollar impact of the AI investment boom lies in its absorption effect on global capital. Through large-scale issuance of corporate bonds, the United States is absorbing resources and capital from all over the world. Whether through direct participation in rights issues or through reverse Yankee bond offerings, the advantages created by this investment boom are directing resources towards the US dollar. This capital flow constitutes a "silent" but substantial support for the US dollar.

Barclays emphasized that in the macro field, sometimes the development at the enterprise level is regarded as taking place in some parallel universe. Although the narrative of the foreign exchange market still remains at the level of data deficiency and the risk of government shutdown, the "elephant in the room" is actually the huge AI investment by technology companies and the global capital flows it has triggered.

The risks faced by the expectation of the US dollar bottoming out

These developments reinforce Barclays' view in its September Outlook and Global Outlook reports that the US dollar may have bottomed out. In fact, the current trading level of the US dollar is even stronger than the institution's previous expectations that exceeded market consensus. Barclays said that in hindsight, it should have retained its initial medium-term forecast of 1.13 for the euro against the US dollar.

However, this judgment still faces key risks. Barclays pointed out that the main risks include interference with the independence of the Federal Reserve, although the risks brought by Cook's judicial ruling have currently declined. In addition, the possibility of deterioration in the corporate bond market, especially the expansion of credit spreads in some sectors of the US technology credit sector, also constitutes a risk factor worthy of attention.

Despite these risks, the growth resilience driven by the AI investment boom, the revaluation of interest rate expectations, and global capital inflows are providing multiple supports for the US dollar. This "silent rise of the US dollar" may mark an important turning point in the trend of the US dollar.

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