Standard Chartered is leaning towards a bullish outlook, betting that rapid productivity and profit growth can support the exclusivity of the US dollar, although the bank warns that the risks are much higher than most expect.

"We see a way in which the exclusivity of the US dollar can be maintained through rapid productivity and profit growth, and, as a result, strong capital inflows. There must be a number of factors involved, but we believe the risks are much higher than what the market currently expects and estimates," Standard Chartered analysts said in a recent note.

Preliminary data now points to "accelerating productivity growth in the United States," with recent gains strong enough to hint at a structural shift. However, Standard Chartered emphasizes that most periods of sharp productivity growth are cyclical, which makes it difficult to assess the latest spike as a sustainable trend. Analysts also emphasize that earnings growth closely follows productivity, noting "a broad correlation between periods of strong productivity growth and periods of strong stock market dynamics."

However, capital flows remain a key factor. If the path of productivity, profits, and capital inflows continues, "real returns will become a magnet for fixed income investors," providing continued support for the dollar. However, the report warns that in the absence of sustained productivity and capital inflows, the dollar is "at risk due to rising domestic and foreign debt."

While AI could be a watershed moment for U.S. competitiveness, Standard Chartered cautions that there is still no clear evidence in the aggregate data for an AI-driven productivity surge. "We are leaning towards the possibility that AI can drive faster growth in aggregate productivity, but so far we have not found a way to show this empirically," the analysts said.