Investing.com – The U.S. dollar is poised for a final rally to cap its multi-month cycle as an artificial intelligence-driven capital expenditure boom cements American economic outperformance over other major economies, according to a report by BCA Research.
BCA raised its three-month target for the U.S. Dollar Index to 105, arguing that resilient domestic data, a widening real-rate gap in favor of the Greenback, and favorable seasonal trends will support the currency in the near term.
“The global industrial cycle, powered by AI capex, is running at its strongest pace since 2021,” BCA FX Strategist Artem Sakhbiev wrote in the report.
“The U.S. is best positioned to capture the next leg of that growth, widening the growth gap with the rest of the G10.”
AI capex widens U.S.-G10 growth disparity
BCA highlighted that global data center construction is set to top $1 trillion next year, with the U.S. construction pipeline alone exceeding the rest of the world combined.
Real-rate spreads and central bank mispricing
While nominal yield spreads have risen globally as central banks respond to energy supply shocks, BCA noted a critical divergence in real yields.
Overseas yield increases have been driven almost entirely by surging inflation expectations. In contrast, U.S. yield increases reflect rising real interest rates, widening the real-yield gap in favor of the dollar.
Markets are pricing in heavier central bank rate hikes outside the U.S.—particularly for the Canadian dollar, Swedish krona, New Zealand dollar, and British pound – than is justified by their weaker underlying demand. BCA expects policy expectations outside the U.S. to face downward revisions as growth flags, providing further dollar tailwinds.
