Barclays Says Dollar Strength to Extend Into 2026 as AI Capex Lifts Growth Outlook
Key Takeaways
The US dollar is set to stay on the front foot into 2026, with risk assets supported by improving sentiment and a powerful US investment cycle led by artificial intelligence, Barclays said in a research note. The bank argues a structurally stronger greenback could coexist with buoyant equities and credit as productivity gains and capital expenditure broaden the expansion.
AI Investment Cycle Seen as Structural USD Support Barclays contends that sizable US AI-driven capital spending will be economically, geopolitically and competitively transformational for the currency. The investment wave is expected to lift US productivity, expand potential growth and anchor sustained global demand for American technology, infrastructure and services—conditions that typically underpin the dollar via higher returns on capital and persistent inward liquidity flows.
The bank notes the dollar’s resilience despite debate around AI valuations, corporate earnings quality and the payback of large-scale investments, suggesting USD performance has been supported by expectations for superior US growth and persistent risk appetite.
Policy Backdrop Eases Tail Risks The outlook is reinforced by what Barclays characterizes as a friendlier policy and political mix: fading concerns about Federal Reserve independence, reduced tariff risks and ongoing fiscal support. While the monetary-policy path remains data-dependent, the bank sees fewer immediate shocks that would undermine the US growth premium. That combination, in its view, keeps USD on a firmer long-run footing and stabilizes broader risk sentiment.
Implications for FX Positioning and Carry Trades Barclays warns a structurally firmer dollar would pressure global FX carry strategies and weigh on emerging-market currencies, particularly those reliant on external financing or with wide current-account gaps. A stronger USD reduces the cushion for borrowers funded in dollars and raises the hurdle rate for risk-adjusted returns in EM FX. Conversely, US-centric assets linked to the AI buildout are seen as relative outperformers as capital and earnings momentum concentrate in the domestic growth engine.
Equities, Credit and Yield Dynamics The bank’s stance implies a macro regime where a solid USD does not preclude positive equity and credit performance if US investment drives productivity and profitability. Yield dynamics remain pivotal: if the investment cycle sustains the US growth premium without a disorderly repricing of rates, equity multiples and credit spreads could stay supported while FX volatility tilts in favor of the dollar. According to BPayNews, this setup keeps attention on upcoming US economic prints and guidance from major AI and infrastructure beneficiaries.
Market Highlights – Barclays expects USD strength to persist into 2026 on AI-led capex and improving risk appetite. – Stronger dollar seen pressuring EM FX and global carry trades. – Easing policy tail risks—Fed independence, tariffs and fiscal support—bolster the constructive USD view. – US-centric assets tied to the AI investment cycle are expected to outperform peers.
What traders are asking Q: Why could the dollar and risk assets rise together? A: If US-led investment boosts productivity and growth, earnings and credit fundamentals can improve even as capital flows support the dollar, allowing both USD and risk assets to firm.
Q: Which currencies are most vulnerable? A: EM currencies with large external financing needs, limited FX reserves or wide current-account deficits are typically more exposed when the dollar strengthens and funding conditions tighten.
Q: What could derail this view? A: A sharp slowdown in US capex, negative AI return-on-investment surprises, a resurgence in tariff or policy risks, or an adverse rates shock that tightens financial conditions too quickly could challenge both USD and risk assets.
Q: How might traders position around this theme? A: Strategies could include selective USD longs against high-beta EM FX, cautious carry exposure, and relative overweight to US assets leveraged to AI and infrastructure—while monitoring US data and Fed communications for shifts in rate expectations.
