Bank of America Expects U.S. Dollar to Strengthen in H2 2026, Citing Three Key Drivers

According to Yahoo Finance and Bank of America, the U.S. dollar is expected to strengthen further in the second half of 2026. The bank's foreign exchange team identified three main factors supporting dollar appreciation: Middle East tensions and rising oil prices, the AI boom attracting overseas capital inflows, and expectations that interest rates will remain elevated longer than market consensus currently reflects. BofA strategist Alex Cohen noted that while oil prices surged about 40% this year despite a decline in June, new regional tensions are pushing prices higher, supporting dollar demand. On the AI front, strong U.S. equity performance driven largely by artificial intelligence investments continues to attract foreign investors. Additionally, BofA forecasts the Federal Reserve will raise rates three times in 2026, compared to the market's expectation of just one increase. Cohen stated that if rates ultimately exceed market expectations by 75 basis points, it would typically benefit the dollar. The bank views these factors as mutually reinforcing, suggesting 2026's dollar strength reflects sustained U.S. economic relative strength rather than a temporary rebound.
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