These themes include escalating tensions in the Middle East, a Federal Reserve stance that is tougher than market expectations, and continued heavy investment in AI by major tech companies.

Oil has risen roughly 20% from its post-ceasefire lows amid renewed tensions around the Strait of Hormuz. Bank of America currency strategist Alex Cohen noted the significant net short position in the oil market coupled with low inventories, arguing that this environment suggests a "higher threshold for decline" in oil prices than for further gains.

Although the dollar's correlation with oil broke down in late June and early July, Cohen noted that this relationship has "reestablished itself, reminding us that where the oil market moves, the dollar should move in the current environment." Furthermore, BofA maintains a "distinctly unconventional" forecast of three additional Fed rate hikes this year—in September, October, and December—for a combined 75 basis points, while the market is pricing in only 28 basis points. Cohen cited Fed Chairman Warsh's recent remarks to Congress that he "intends to hold firmly to the Fed's 2% inflation target"—even after weak June CPI data.

Real interest rate differentials have widened in favor of the dollar despite the soft inflation data, which the strategist views as "another headwind for the dollar." Speaking about AI investments, Cohen noted that the rapidly evolving technology has become a "net positive for the dollar": Capital spending estimates suggest the five largest U.S. hyperscalers could spend about $900 billion in 2027, while the combined spending of the 25 largest non-U.S. companies will be only about $220 billion. According to BofA's own June sentiment survey, 65% of respondents expect AI to have a net positive impact on the dollar this year, while only 12% see it as a negative.

Cohen also noted that AI-related spending—including semiconductors, memory, and electricity—continues to rise even as overall inflationary pressures ease, which could strengthen the Fed's appetite for tight policy. According to Cohen, current dollar positioning in futures markets, despite being close to multi-decade highs, may overstate investor optimism, as indicated by BofA's own sentiment surveys and options pricing.

Taken together, the bank concluded that the three identified themes "collectively increase bullish risks" for the dollar heading into the second half of the year.