AI Rally, Haven Flows Boost Bets on Further Dollar Gains
Traders are betting the US dollar will rise in the weeks ahead, supported by lingering uncertainty over US-Iran talks and the AI-fueled rally in the stock market.
The advanced last month as a ceasefire failed to result in any apparent progress toward ending the war. The rise reflected the ripple effects of the conflict, which gave investors renewed incentive to move cash into the US as the oil-price shock pushed up bond yields and traders braced for the Federal Reserve to shift toward raising interest rates.
The currency gauge rose another 0.3% Monday after Iran said it would suspend negotiations to protest Israel’s offensive in Lebanon, though the gain was restrained by President Donald Trump ’s later claim that talks were making progress. The euro traded around the $1.1635 level as of 4 p.m. in New York; the yen was at 159.65 per dollar.
The greenback was also supported early Monday from a report showing in May expanded at the fastest pace in four years, which bolstered speculation that the Fed is likely to start pushing rates higher as soon as late this year.
Moreover, the currency has benefitted in recent weeks from the rise in the US stock market, where enthusiasm over artificial intelligence — and the impacts of the massive investments in it — has overshadowed the impacts of the war.
Investors this week will look to fresh data — notably Friday’s May jobs report — to assess the health of the US economy and the Fed’s path under new Chairman Kevin Warsh .
“There is a creeping view that US growth could be re-accelerating as AI investment seeps through the broader economy,” Chris Turner , head of foreign-exchange strategy at ING Bank, wrote Monday. “This week’s data should further support the growing narrative that the Fed can be comfortable with its full employment mandate and can focus squarely on the upside risks to inflation.”
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Speculative positioning in the currency derivatives market suggests that traders are increasingly bullish on the greenback. Leveraged funds, asset managers and others now hold about $16.5 billion in long wagers on the US currency, according to Commodity Futures Trading Commission data aggregated by Bloomberg — the most since April and up from only about $5 billion three weeks ago.
At , currency strategists led by George Saravelos said Monday that higher US services exports driven by the AI boom could improve the nation’s current account balance by roughly 1% of GDP.
“The dollar will be the predominant beneficiary of future AI income streams,” Saravelos wrote. The currency is “currently only moderately supported by the AI capex boom” but “the dominance of US technology companies suggests they will reap future profits on the capex.”
Rabobank analysts now see a risk that the Strait of Hormuz will remain closed for up to three months, Senior FX Strategist Jane Foley noted Monday. That could drive the euro to the $1.15 mark versus the dollar in the month ahead.
“With respect to news regarding a deal between the US and Iran, the dollar currently appears to be suspended somewhere between optimism and scepticism,” Foley said.
