U.S. Stocks Thrive on a Weak Dollar: Deutsche Bank Highlights Dollar-Hedged ETFs

TradingKey - After U.S. tariffs sparked a wave of “de-dollarization,” the dollar has remained weak while U.S. stocks continue to hit record highs — a divergence that has drawn attention. On Tuesday, amid expectations of Fed policy easing, the U.S. Dollar Index (DXY) fell below 97 for the first time in over two months.

As of writing (September 16), the DXY stood at 97.00, down 0.36% on the day, with an intraday low of 96.93 — the first break below the 97 psychological level since early July. Meanwhile, Nasdaq futures continued to rise, extending gains after six consecutive days of record closing highs.

Deutsche Bank analysis shows that as overseas investors return to buy U.S. stocks and bonds, they are reducing their dollar exposure at an unprecedented pace.

In a report on Monday, Deutsche Bank cited data from around 500 funds and found that inflows into dollar-hedged ETFs holding U.S. assets surpassed inflows into unhedged dollar ETFs — the first time in nearly ten years.

Deutsche Bank noted that this hedging behavior explains why international investors are returning to U.S. capital markets even as the dollar remains weak.

In the first half of 2025, especially after the so-called “Liberation Day” plunge in early April, concerns over tariff uncertainty and threats to Fed independence intensified calls that the era of “American exceptionalism” was fading, prompting global investors to “sell everything” related to U.S. assets.

After a sharp panic-driven sell-off, U.S. equities rebounded strongly, with the S&P 500 up about 30% from its April low. 

Deutsche Bank analysts recently pointed out that foreign investors may have already resumed buying U.S. assets, but they do not want to be exposed to potential dollar losses. For every purchase of a dollar-hedged asset, they sell an equivalent amount of currency to eliminate foreign exchange risk.

It should be noted that, historically since the 1970s, the dollar’s movement has been relatively independent of U.S. equities — the relationship is not simple, one-way, or linear.

CICC Research pointed out that a weakening dollar often reflects a narrowing growth gap between the U.S. and other countries. However, if U.S. domestic growth remains solid, U.S. stocks can still rise.

Moreover, even during periods of significant dollar depreciation, U.S. equities can continue to climb — for example, after the 1985 Plaza Accord, U.S. stocks kept rising until the Black Monday crash in 1987.