Published: July 8th, 2026
Foreign demand for exposure to America's artificial intelligence boom is driving support for the US Dollar, complicating earlier expectations that the Greenback would weaken as American economic outperformance faded.
A note from Goldman Sachs says the bank entered the year expecting slower US growth to weigh on the USD. Instead, a war with Iran and renewed enthusiasm for AI stocks have strengthened American market dominance.
The surge in AI-related investment has added another leg to US equity outperformance, strengthening overall demand for American financial assets. Yet Goldman's analysts say equity gains alone can't explain the Dollar's rise, suggesting other forces continue to influence exchange rates.
Even so, the bank argues that the stock market has shifted from being a drag on the dollar to a tailwind.
Goldman points to three reasons why USD isn't fully reflecting the strength of US equities.
The first is geographical. American stocks have outperformed developed markets by more than they have outperformed emerging markets. Because emerging-market currencies account for an important share of global capital flows, that limits the boost typically provided to the Dollar.
The second concerns the nature of corporate earnings. Investors seem more willing to reward companies that deliver durable profit growth over temporary earnings upgrades. Currency markets have responded in much the same way. Structural improvements in expected profitability have proved more supportive of the Greenback than upbeat quarterly forecasts.
The final explanation lies in the composition of the stock market rally. Much of this year's advance has been driven by a small group of big tech companies. Narrow market leadership tends to generate weaker spillover effects across the broader economy and therefore produces less support for the currency.
These nuances help explain why the Dollar has lagged the extraordinary performance of American equities without undermining the broader relationship between the two. International investors buying American shares still need to acquire Dollars, ensuring that sustained equity inflows eventually find their way into foreign-exchange markets.
The importance of artificial intelligence extends beyond equity valuations to global capital allocations.
Investors seeking exposure to the world's leading AI companies have few realistic alternatives to the United States. The country's largest technology firms continue to dominate the development of advanced AI infrastructure, software and cloud computing. Foreign capital has followed accordingly.
What began as an equity market story is gradually becoming a balance-of-payments story. Global investors buying American shares, corporate bonds and technology infrastructure must first purchase dollars. Those flows create persistent underlying demand for the currency that is largely independent of day-to-day economic data.
That helps explain why the AI theme carries greater significance than a conventional technology rally. The structural demand generated by international portfolio allocation may persist long after enthusiasm surrounding individual earnings reports has faded.
The scale of investment in AI-related stocks is remarkable by any historical comparison.
America's largest hyperscale technology companies, including Microsoft, Alphabet, Amazon, Meta and Oracle, are collectively expected to spend between $600 billion and $700 billion on capital expenditure during 2026. Roughly three-quarters of that total is estimated to be directly related to AI infrastructure.
Each of the largest cloud providers is now investing well above $100 billion annually. Amazon alone is expected to approach $200 billion in capital spending, while Alphabet, Meta and Microsoft continue to expand data-centre capacity at unprecedented speed.
Measured against the wider economy, hyperscaler AI investment now amounts to roughly 1.6% of U.S. GDP. Some estimates that include the broader Magnificent Seven place the figure closer to 2%. Those ratios rival, and in some cases exceed, investment intensity seen during the peak of the dotcom era, although today's valuations remain considerably less speculative than those prevailing in 2000.
The industry's economics have changed accordingly. Capital expenditure now consumes between 45% and 57% of revenue at several leading firms, proportions more commonly associated with utilities or heavy industry than software companies.
Wall Street expects the investment cycle to continue. Several investment banks now forecast total AI capital expenditure exceeding $1 trillion during 2027, while the Bank for International Settlements estimates that the five largest hyperscalers alone will spend more than $1 trillion across 2025 and 2026. Increasingly, those investments are being financed through debt markets rather than operating cash flow.
None of this diminishes the Federal Reserve's importance. Interest-rate expectations remain the dominant force driving short-term currency movements. Markets continue to price the possibility of further policy tightening later this year, with some investors expecting additional increases during 2027 should inflation remain stubborn.
Against that backdrop, the AI story can be seen as a structural rather than cyclical influence. Monetary policy determines the dollar's direction over weeks and months. AI-related capital flows shape its underlying trajectory over years.
The interaction between the two helps explain why the currency has remained resilient despite periodic disappointments in economic data.
Recent labour-market data briefly challenged the idea of continued American economic outperformance by suggesting the Fed may have less reason to raise interest rates than markets had anticipated. A note from Crédit Agricole argues that investors may already be pricing an overly aggressive tightening cycle, leaving the Greenback vulnerable if policymakers fail to validate those expectations.
Lloyds Bank expects investors to scrutinise how America's central bank is adapting under its new leadership and whether support for additional tightening is strengthening. The Fed left interest rates unchanged at its June meeting while reaffirming its commitment to price stability. Updated projections showed a growing number of policymakers favouring additional rate increases alongside higher inflation forecasts.
Any new signals that reinforce that hawkish stance could energise USD's momentum. If, instead, they suggest policymakers still see a credible path towards lower interest rates, recent gains may prove harder to sustain.
