Central banks globally are planning to increase their dollar reserves this year, indicating a rising demand for the US currency [ft.com]. This trend is partly fueled by elevated interest rates in the US, which make dollar-denominated assets more attractive.
Speculative investors have also significantly bolstered their bullish positions on the US dollar, reaching a 16-month high. As of June 9, net long dollar positions held by hedge funds, asset managers, and other speculators amounted to approximately $27.8 billion, a notable reversal from pre-conflict trends where investors held around $22 billion in bets against the dollar [hedgeweek.com]. This confidence in the dollar has been building for 13 consecutive weeks, driven by its traditional safe-haven status during geopolitical stress, particularly following the escalation of conflict in the Middle East. A Bloomberg dollar index has risen about 1.6% since the conflict began, further supported by resilient US economic indicators and higher oil prices [hedgeweek.com].
Beyond traditional factors, the dollar is also seeing support from AI-driven capital inflows. A major US technology IPO is expected to generate substantial foreign capital, with Commerzbank's Volkmar Baur estimating that a small initial free float of a $75 billion IPO could lead to at least $15 billion in foreign buying on a single day. This amount could refinance about 8% of the seasonally adjusted quarterly US current account deficit. Further inflows are anticipated as lock-up periods expire and more AI-related equity issuance comes to market. These inflows are particularly supportive of the dollar against the euro, especially if a significant portion of this capital originates from Europe [fxstreet.com].
Analysts like Alex Cohen, an FX strategist at Bank of America, believe the broader macroeconomic environment continues to favor the US currency [hedgeweek.com]. The sustained build-up in confidence is also evident in the derivatives market, where sentiment among leveraged funds and asset managers has shifted meaningfully, as tracked by the Commodity Futures Trading Commission [hedgeweek.com]. Concurrently, there has been an increase in bearish sentiment towards the Japanese yen, with short bets reaching their highest level since 2017, as the currency tests levels that previously prompted intervention from Japanese authorities [hedgeweek.com].
