The US dollar re-enters a period of strength: Leading major currencies in the past six months, capital flows back to the US market at an accelerated pace.

The US dollar has entered the second half of 2026 in a strong stance, benefiting from market bets on higher US interest rates and the continued popularity of the "American exceptionalism" narrative - investors' demand for US dollar assets is almost insatiable, which could mean more pain for other currencies. By the mid-year point, the US dollar had recorded a 3% increase, making it the best performing major currency. This is in stark contrast to a year ago when, due to US tariff policies, the US dollar suffered a drop of over 10% in the first half of the year, marking the largest half-year decline since the early 1970s. Currently, despite the prospect of a prolonged ceasefire in the Iran war dragging down energy prices and easing inflation risks, the strong growth of the US economy driven by AI fever continues to lead the market to expect the next interest rate move to be upward rather than downward. This further reinforces the US dollar - which had already been supported by political tensions surrounding GEO Group Inc. The new Federal Reserve Chairman Kevin Walsh's hawkish tone remains focused on inflation, which is still far above the Fed's target of 2%. Traders currently expect at least one rate hike this year, with a 50% chance of a second hike - a few weeks ago, the market was expecting no change. Unsurprisingly, the US dollar has risen to a 40-year high against the yen, causing deep concern among Japanese officials; it is also approaching its high point for the year against the euro. Purchasing US goods has become more expensive, but this may not deter anyone. Stephen Jen, CEO and CIO of Eurizon SLJ Asset Management, said, "A strong US dollar is unwelcome globally, including in the US itself. But the values and attractiveness of US companies and being in the US are just too outstanding. Foreign companies are heavily investing in the US to establish a foothold, which also supports the US dollar." From Oakland to Zurich, policymakers in many countries are struggling to cope with their weakening currencies - which could push up their import bills. Despite falling energy prices, the prices of food, travel, and other goods and services have skyrocketed. The Korean won has fallen to a record low, fueling stock market bubbles and worrying regulators; emerging markets like India are intervening in their currencies or raising interest rates to resist the strong US dollar. Bullish positions are rapidly accumulating Data from the Commodity Futures Trading Commission (CFTC) shows that investors' bets on the continued strength of the US dollar, with their positions increasing at the fastest rate on record in the first half of the year. Speculators hold a net long position of around $30 billion, the highest level since the start of Trump's second term. The net increase in positions in the first half of the year was $37 billion, the fastest increase since records began in 2012. Joseph Purtell, portfolio manager at Neuberger, said, "I do believe that the short-term risk is that rising real rates in the US will further strengthen the US dollar. Can we break out of the range that has formed over the past six to nine months? I think it's quite likely." However, he added that his company's long-term view remains that the US dollar will weaken, due to structural concerns such as US fiscal sustainability. Record inflows of funds Since April, US economic data has consistently brought unexpected surprises, and corporate profit growth has repeatedly exceeded expectations. Morgan Stanley said in a report that if the market continues to price in the hawkish stance of the Fed, the risk of the euro falling to $1.10 cannot be ignored - currently, the euro is trading at around $1.135. At the same time, the AI frenzy and trillion-dollar IPOs (led by SpaceX) are attracting record amounts of funds. According to Bank of America estimates, about $341 billion has flowed into US stocks so far this year, the highest amount in history for the same period, compared to $134 billion during the same period last year. In addition to hosting major cloud service providers competing to build AI data centers, the US also possesses some of the top quantum computing companies, which has further convinced some investors of the logic behind the strengthening US dollar. Mabrouk Chetouane, Global Head of Market Strategy at Natixis Investment Management, said, "A strong economy comes with a strong currency. If we believe that future growth depends on the combination of computing power, energy, and labor, which country or region is in the best position? The answer is the US - the winner takes all."