Traders are betting on a stronger US dollar in the coming weeks, buoyed by uncertainty surrounding US-Iran negotiations and an AI-fueled stock market rally.
The Bloomberg Dollar Spot Index rose last month as a ceasefire failed to make progress toward ending the conflict. The oil shock pushed up bond yields, and traders began to brace for a possible Fed rate hike.
On Monday, the index gained another 0.3% after Iran announced it was suspending talks, though gains were tempered by Trump's announcement of progress.
The dollar was also supported by data showing US manufacturing activity grew at its fastest pace in four years in May and a stock market rally, where enthusiasm for AI overshadowed the effects of the war.
"There is growing consensus that US economic growth could accelerate again as AI investment permeates the broader economy," wrote Chris Turner of ING Bank.
Speculative positions confirm optimism: long dollar bets have risen to $16.5 billion. This is the highest since April and three times higher than three weeks ago ($5 billion), according to CFTC data.
At Deutsche Bank, strategist George Saravelos stated that the growth of services exports thanks to the AI boom could improve the US current account balance by 1% of GDP.
"The dollar will be the main beneficiary of future AI revenue streams," he wrote.
Rabobank analysts see a risk of the Strait of Hormuz closing for up to three months, which could send the euro to $1.15 against the dollar.
"The dollar is suspended somewhere between optimism and skepticism" regarding the Iran deal, noted strategist Jane Foley.
This week, the focus is on the May employment report on Friday and the assessment of the Fed's stance under new Chairman Kevin Warsh.