In the first half of 2026, the US dollar has already demonstrated its strength. Driven by two main factors—global capital inflows into US technology assets and market expectations that the Federal Reserve will maintain high interest rates for an extended period—the dollar has appreciated by approximately 2.5% against a basket of major currencies. Bank of America's latest assessment indicates that, supported by multiple positive factors, the dollar's appreciation potential will further expand in the second half of 2026. Bank of America's foreign exchange research team identifies geopolitical conflicts, the booming artificial intelligence industry, and expectations of persistently high interest rates as the three core drivers supporting the dollar's continued strength in the second half of the year. The combined effect of these multiple positive factors will further solidify the dollar's strong position. Middle East geopolitical conflicts drive up oil prices, solidifying the foundation for the dollar's safe-haven appeal and demand. The turbulent situation in Iran and restrictions on shipping through the Strait of Hormuz continue to escalate geopolitical risks in the Middle East, keeping international oil prices high. Although international crude oil prices fell sharply in June, Brent crude and WTI crude futures prices have still risen by 40% this year, with the new round of geopolitical conflicts providing further upward momentum for oil prices. Bank of America foreign exchange strategist Alex Cohen stated in a client research report that global oil trading is denominated in US dollars, and higher oil prices will force markets to generate significant demand for dollar exchange, directly supporting the dollar's exchange rate. At the same time, escalating geopolitical risks will trigger global risk aversion, and the dollar, as a traditional safe-haven currency, will continue to attract safe-haven buying. Cohen pointed out that even if oil prices subsequently fall, they will likely stabilize near pre-conflict levels, a floor that will effectively hedge against the downside risks of the dollar and become an important buffer for the dollar's exchange rate. The AI industry boom is attracting global capital, continuously driving up demand for the US dollar. While geopolitical crises in previous years often impacted global stock markets and suppressed risk asset prices, 2026 was a different story. The explosive growth of the artificial intelligence industry completely offset the negative impact of geopolitical conflicts, leading to a sustained strength in the US stock market in the first half of the year and becoming the second largest core driver supporting the US dollar. Currently, global capital is flocking to the US AI sector. Overseas investors wishing to purchase shares in core AI technology companies like Nvidia, Intel, and Broadcom, or leading AI computing power giants like Microsoft, Meta, Amazon, and Google, must sell their local currencies and exchange them for US dollars. This investment behavior directly creates massive demand for US dollars, continuously pushing up the dollar's exchange rate. Cohen emphasized that the scale of capital expenditure in the US AI sector far exceeds that of other economies globally, and the industry's growth potential has not yet been fully realized. Judging from the current development trend, the AI industry's dividends will continue to provide upward momentum for the dollar's exchange rate. The Fed's interest rate hike expectations are ahead of the market, and the interest rate differential advantage consolidates the dollar's position . Compared to general market expectations, Bank of America has made a more aggressive prediction regarding the Fed's monetary policy, which is also a key driver of the dollar's strength. The market only anticipates one Fed rate hike in 2026, while Bank of America predicts three hikes this year, each by 25 basis points, for a total of 75 basis points. The long-term high-interest-rate environment is the core financial logic supporting the dollar's strength: yields on dollar-denominated assets such as government bonds, money market funds, and corporate bonds will continue to rise, widening their yield advantage compared to assets in other major economies, attracting a continuous influx of global capital into the US market, further increasing demand for the dollar. Furthermore, expectations of a tighter monetary policy from the Fed will widen the interest rate differential between the US and other economies, continuously enhancing the dollar's competitiveness in the global foreign exchange market. Cohn frankly stated that current expectations regarding the Fed's monetary policy are the core factor dominating dollar market sentiment, and the market's speculation on the extent of Fed rate hikes directly determines the short-term strength of the dollar. Multiple positive factors converge, and the strong dollar is not a short-term rebound . In summary, the three main drivers supporting the dollar are not acting independently, but rather forming a mutually reinforcing positive cycle: high oil prices and the AI industry investment boom continue to push up inflationary pressures, compressing the Federal Reserve's room for interest rate cuts and even forcing the Fed to raise rates further; while the booming AI sector continues to attract overseas capital inflows to the US, solidifying the dollar's liquidity. Cohen stated that multiple positive factors are currently converging in the foreign exchange market, providing ample momentum for a short-term dollar rise. This round of dollar appreciation is not a temporary rebound, but a genuine reflection of the continued prominence of the US economy's relative advantage, which will continue to support the US economy and inflation trends, ultimately benefiting cross-border dollar capital flows.