US Dollar’s Rally Hangs on AI Stocks: Hidden Risk Sparks Market Warning

The U.S. dollar may lose its recent upward momentum if AI stocks continue to drop, according to Torsten Slok, Chief Economist at Apollo Global Management. The greenback’s strength is now closely tied to the performance of America’s artificial intelligence trade.

Over the past year, foreign investors have poured record amounts of capital into U.S. stocks, driven largely by optimism around AI growth. Most of these overseas investors have chosen not to hedge their dollar exposure, leaving their positions fully reliant on sustained U.S. market strength.

This unhedged positioning means the dollar has become heavily dependent on the AI boom. If AI-related market sentiment fades and investors pull back from U.S. equities, the slowdown in foreign capital inflows will directly pressure the U.S. dollar and trigger a notable downside correction.

The AI rally has been a key driver of the dollar’s 2026 strength. To buy U.S. AI and tech stocks, foreign investors must convert their local currencies into U.S. dollars, creating steady demand for the greenback. In addition, high U.S. interest rates have made currency hedging too costly for most overseas funds, making the dollar even more sensitive to stock market fluctuations.

U.S. stocks have stalled after hitting record highs in early June. Investors are growing cautious over massive AI infrastructure spending, as widespread profit returns from AI investment remain uncertain. Any broad selloff in AI stocks could trigger simultaneous weakness in the U.S. dollar.

That said, the dollar still has solid near-term support. Markets are expecting the Federal Reserve to raise interest rates as early as September. Compared with other major economies, the U.S. shows stronger economic resilience, keeping the Fed more inclined to tighten policy than its global peers. The Bloomberg Dollar Spot Index has climbed 1.4% so far this year, weighing on currencies like the Japanese yen and Canadian dollar.

Although Fed hike expectations continue propping up the dollar, its newly formed reliance on volatile AI market sentiment has created a clear downside risk for its ongoing rally.