Global | The dollar regains its footing

The foreign exchange market has experienced a volatile first half of 2026. The year began with a weakened dollar—with the euro above 1.20 dollars and at five-year highs against the US currency—due to doubts about US trade policy and expectations of rapid monetary easing by the Federal Reserve (Fed). However, the dollar regained ground as the year progressed due to three factors: the shift in expectations regarding the Fed's actions, the conflict in the Middle East, and the flow of investment into the United States linked to the development of artificial intelligence.

At the beginning of the year, markets anticipated that the Fed would cut interest rates rapidly during 2026. This reduced the appeal of dollar-denominated assets and favored the euro and other currencies. The Trump administration's tariff threats were also interpreted as a negative factor for the US currency, due to the uncertainty they generated regarding trade, inflation, and growth.

That scenario did not last long. The persistence of inflationary pressures and the resilience of the US economy led investors to revise their forecasts. The shift was notable: from expecting an intense cycle of rate cuts, the outlook moved to contemplating that the Fed would maintain a restrictive policy for longer, and even that the next move could be a rate hike. Markets are pricing in a 25-basis-point increase in the last quarter of the year and a certain probability of another in 2027, restoring appeal to dollar-denominated assets.

To this was added a more complex international context. Tensions between the United States and Iran boosted energy prices. Brent crude rose more than 50%, remaining above 100 dollars for several weeks, and reopened an old gap between energy-importing and energy-producing economies. The United States faced the shock better thanks to its production capacity. Furthermore, global uncertainty reinforced the dollar's role as a safe-haven asset.

The third element was the ability of US markets to attract international capital. The boom in investment in data centers, semiconductors, and infrastructure linked to artificial intelligence reinforced the appeal of US companies and assets, indirectly sustaining demand for dollars.

Among developed currencies, the euro once again showed its sensitivity to energy shocks. Energy dependence limited its progress, as the market assumed the European Central Bank would have less room than the Fed to maintain a restrictive monetary policy. The pound showed greater resilience, supported by the Bank of England's caution in the face of high inflation. The yen was the currency most pressured by the wide interest rate differential with the United States, the new Japanese government's expansionary fiscal policies, and Japan's energy dependence. The dollar exceeded 163 yen, a level not seen in nearly four decades, which triggered coordinated intervention between Japan and the United States to curb the depreciation.

Emerging market currencies offered a mixed picture. While the Turkish lira and the Indian rupee continued to depreciate, in Latin America, some currencies found support in high interest rates and better economic prospects. Colombia was the clearest example, combining an election result more favorable to investment with the boost from rising oil prices. This latter factor also benefited other crude-exporting economies.

For the coming months, the Fed's evolution, geopolitics, and the United States' ability to continue attracting capital will set the course for the foreign exchange market. Although the dollar has regained ground and maintains its status as a safe-haven asset, its strength is not guaranteed: a less restrictive Fed, reduced tension in the Middle East, or a slowdown in flows linked to artificial intelligence could weaken it. Added to this is the debate over a possible reduction in global exposure to US assets, given trade uncertainty, fiscal deterioration, and institutional doubts. These factors have weighed less since February, but could regain prominence. The balance of risks for the dollar, therefore, can change quickly and cause it to lose some of the ground gained this year.