International Finance Center analysts Jo Eun and Choi Seong-rak projected the dollar index will show gradual strength through year-end, driven by US relative growth advantage and AI-related investment expansion. The analysts stated in their August 6 report that while major investment banks' dollar forecasts diverge, the average trend points to modest strength through year-end before gradual weakening. The dollar index rose from 97.9 on May 8 to 101.61 on June 24, reflecting prolonged US inflation and Federal Reserve tightening expectations.
Dollar Index Records 3.8% Gain from May to June
The dollar index climbed from 97.9 on May 8 to 101.61 on June 24, according to the International Finance Center report. The report attributed the gain to expectations of prolonged US inflation and Federal Reserve tightening. Subsequently, weak US employment and inflation deceleration created downward pressure on the dollar, while rising US Treasury yields and crude oil concerns limited the decline.
Central Banks Remove Forward Guidance
Major central banks deleted forward guidance from their policy statements, increasing uncertainty around monetary policy and interest rate differentials, the International Finance Center noted. The center assessed that interest rate gaps between the US and major economies are unlikely to widen significantly. Nomura forecast the Federal Reserve will maintain rates through year-end, citing inflation above the Fed's target as temporary while the labor market remains resilient. Citigroup and Goldman Sachs observed that markets require "clear signals" to unwind rate hike expectations, a process that takes longer than incorporating hawkish factors.
US Growth Outperformance Supports Dollar
Jo Eun stated that US and Eurozone second-quarter growth rates diverged from market expectations, but no factors emerged to narrow the fundamental gap. The analyst projected that second-half growth risks favor US upside and Eurozone downside. The report identified US relative growth advantage as a dollar strength factor.
AI Investment Projected at $700 Billion This Year
Capital expenditure by the four major US hyperscalers is estimated to reach $700 billion this year and $930 billion next year, according to the International Finance Center analysis. The center explained that AI investment simultaneously boosts US growth rates and reinforces downward price rigidity through software and electricity costs. The center assessed that goods price increases and electricity cost rises from the AI boom will act as short-term downward rigidity factors for core personal consumption expenditures, elevating inflation pressure and supporting dollar strength.
Foreign Investors Purchase $1.3 Trillion in US Stocks
Foreign investors net purchased $1.3 trillion in US stocks cumulatively from August 2024 to May 2025, the report stated. Foreign holdings of US stocks expanded to $24.5 trillion during the same period. The International Finance Center evaluated that these funds flowed in mostly without currency hedging, aimed at securing AI exposure. The center warned that if skepticism toward the AI industry intensifies or US stock market corrections deepen, capital could exit rapidly and create downward pressure on the dollar.
November 3 Mid-Term Elections Pose Volatility Risk
The November 3 US mid-term elections represent a variable that could heighten volatility, the report indicated. According to US prediction market Polymarket, Democrats hold an advantage in the House while the Senate race remains competitive, suggesting inevitable political gridlock. Choi Seong-rak noted that dollar index 1-month implied volatility stands at its lowest level since September 2021, indicating the market may not fully reflect related risks. The analyst added that dollar volatility could expand depending on crude oil prices, major central bank monetary policies, and mid-term election developments.
FAQ
What did International Finance Center analysts forecast for the dollar index through year-end?
International Finance Center analysts Jo Eun and Choi Seong-rak projected the dollar index will show gradual strength through year-end before transitioning to gradual weakening. The analysts stated in their August 6 report that while major investment banks' dollar forecasts diverge, the average trend points to modest strength through year-end, driven by US relative growth advantage and AI-related investment expansion.
How much did foreign investors purchase in US stocks from August 2024 to May 2025?
Foreign investors net purchased $1.3 trillion in US stocks cumulatively from August 2024 to May 2025, according to the International Finance Center report. Foreign holdings of US stocks expanded to $24.5 trillion during the same period. The center evaluated that these funds flowed in mostly without currency hedging, aimed at securing AI exposure.
