BofA sees three dollar tailwinds for H2: hyperscaler capex demand, a hawkish Fed, and Hormuz risk. Sterling slipped to $1.3446, euro to $1.1442.
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The dollar has firmed in recent weeks after an earlier slide. Bank of America now sees three factors that could sustain the rally through the second half of 2026.
The first is hyperscaler capital expenditure. BofA analysts said the buildout of AI data centers by the largest cloud providers is generating dollar demand that markets may be underweighting. The second is the Federal Reserve's rate path, which the bank expects to stay on hold longer than current market pricing implies. The third is geopolitical risk tied to the Strait of Hormuz, where any supply disruption would lift energy prices and, by extension, dollar demand from oil-linked flows.
Sterling slipped 0.23% to $1.3446 on the session. The euro eased 0.02% to $1.1442. The dollar rose against the yen, trading at 162.41.
BofA's call is a contrarian one. Most of the consensus entering the second half had leaned toward a weaker dollar on expectations of Fed easing and a narrowing rate differential. The bank's analysts said those expectations are now being challenged by sticky services inflation and a labor market that has not softened enough to trigger cuts.
The hyperscaler thesis is harder to hedge. Data-center investment tends to be dollar-denominated and lumpy, with procurement cycles that concentrate demand in specific quarters. If the capex pipeline accelerates as BofA expects, the dollar could see support from a channel that has little to do with rate spreads or risk appetite.
For now, the dollar index is holding near its highest level since April. The next test comes with the July payrolls report, due Aug. 7.
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