Foreign investors push dollar to 13-month high on AI boom

The dollar index briefly climbed above 100 this week, its strongest level since May 2025, as foreign investors moved into American assets on the back of the AI boom, rising expectations for Federal Reserve rate increases and a broad selloff in tech shares. The currency is heading toward its biggest monthly gain in almost a year.

For U.S. consumers and importers, a stronger dollar can help hold down the cost of foreign goods, from electronics to industrial inputs. For exporters, it cuts the value of overseas sales when those revenues are brought back home, and it makes American products more expensive in foreign markets. Multinational companies that earn heavily abroad also face a translation hit when foreign profits are converted into dollars.

Traders have been pricing in a higher probability of Federal Reserve rate hikes in July and September, betting that a stronger U.S. economy can sustain tighter short-term rates. At the same time, investors have been seeking shelter from volatility in semiconductor and AI names, adding a safe-haven bid to the dollar even as political anxieties persist around President Donald Trump’s tariff agenda and debt plans.

A June 26 Federal Reserve note said the AI boom has spurred massive domestic investment in the United States, especially in data-center construction, and that some of that spending may be drawing in or being financed by foreign investors. That flow ties the currency’s strength not just to monetary policy, but to a real wave of capital spending centered on the infrastructure behind artificial intelligence.

The scale of that foreign commitment is already visible in the government’s accounts. The Bureau of Economic Analysis said foreign direct investment in the United States rose by $332.1 billion to $5.71 trillion at the end of 2024. Europe accounted for a $204.7 billion increase in that position, including larger stakes from the United Kingdom and Germany. In January, assumptions that tariffs and heavier U.S. borrowing would produce a structurally weaker dollar were being reassessed.

For emerging markets, a firmer dollar can be harsher still. It raises the burden of dollar-denominated debt and can pull capital away from riskier assets abroad, especially when investors decide that U.S. growth, AI-related trade and higher yields offer a cleaner return. Reuters data showed AI-related trade drove nearly half of merchandise trade growth in the first half of 2025, even though it made up only about 15% of total trade.