Investing.com - The popularity of the DeepSeek artificial intelligence model from China has roiled currencies this week, and Citigroup (NYSE:C) has taken a look at the implications for the foreign exchange market.
At 05:40 ET (10:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% higher to 107.700, but was still marginally lower on the week after struggling on Monday.
The bank’s semiconductor analysts do not expect leading AI companies will move away from more advanced GPUs, and expect companies will maintain a need for advanced chips.
However, even if DeepSeek is a “game changer,” the US bank still see the foreign exchange implications as limited – at least for now.
“That is because this should have no real impact in our view on either the US exceptionalism story or the attractiveness of US equities,” analysts at Citi said, in a note.
The bank flags the market differentiation in the magnificent seven US tech giants, where AI “users” actually rallied on the day while AI “creators” declined.
“If this were actually a game changer, it would hurt one part of the US tech industry, while helping another. For FX, the net effect should be minimal,” Citi said.
And we should note, FX price action since the DeepSeek news has been relatively muted in our view compared to cross-asset developments.
The other question is whether this is enough of a catalyst to see a rotation out of US equities into European equities, as a significant flow shift could weigh on the USD.
“However, it is premature to make this case just on the DeepSeek news,” Citi added.