Bank of America expects the US dollar to extend its gains in the second half of 2026, driven by Middle East tensions, the artificial intelligence boom, and a higher-for-longer interest rate outlook. The greenback has already appreciated roughly 2.5% against a basket of major currencies this year. FX strategist Alex Cohen wrote that elevated oil prices from the Iran conflict and Strait of Hormuz closure support dollar demand, while foreign investors buying US AI stocks like Nvidia, Intel, Broadcom, Meta, Microsoft, Amazon, and Alphabet must purchase dollars, adding further strength. Bank of America also forecasts the Federal Reserve will hike rates by 25 basis points three times in 2026, well above market pricing of one hike, which would widen rate differentials and attract more capital into dollar-denominated assets.
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