The US dollar may extend its rally due to geopolitical risks, AI-driven equity strength, and higher-for-longer interest rates.
The US dollar has risen approximately 2.5% against a basket of major currencies in 2026, fueled by strong foreign demand for US tech exposure and expectations of prolonged high interest rates. Bank of America anticipates continued dollar strength in the second half of the year, citing three key drivers.
Geopolitical tensions in the Middle East, particularly conflict involving Iran and disruptions in the Strait of Hormuz, are expected to sustain elevated oil prices. Despite a June decline, Brent and WTI crude futures remain up roughly 40% year-to-date, with oil priced in USD likely supporting demand for the currency. The dollar’s safe-haven status further bolsters its appeal amid risk-off sentiment.
US equities, driven by the AI boom, have outperformed in the first half of 2026, reinforcing dollar demand. A higher-for-longer interest rate outlook also supports the currency’s trajectory, according to Bank of America’s FX strategist.