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The dollar eyes a sixth consecutive daily gain against the pound.
Dollar exchange rates are rising across the board thanks to a confluence of supportive factors: concerns about the cost of the AI investment cycle, rising energy costs and the associated lift in Federal Reserve rate hike bets.
"The combination of an amplification in immediate Fed pricing, rising UST yields (widening UST-JGB spreads remain integral to USD/JPY) and/or risk negativity should provide ongoing USD impetus," says Jeremy Stretch, Chief International Strategist at CIBC Capital.
The dollar looks to be the beneficiary of the step-up in international bond yields that are in turn linked to rising energy costs, suggesting it is benefiting from the realisation that the global growth cycle faces a new setback.
The dollar index - a measure of broad USD performance - rises 0.30% on the day to 101.45, the late-June one-year peak sits a little higher at 101.80.
That gain translates into a fall in the euro-dollar pair to July lows at 1.1370 and pound-dollar to 1.3331.
Energy prices are climbing once again as the conflict in the Middle East widens on multiple fronts. That's pushing up expectations that inflation will rise in future months, and bond yields are responding by going higher.
That lift in bond yields also reflects a belief that central banks, the Federal Reserve included, will have to respond to developments by raising base interest rates.
The latest advance in oil and gas prices has the Middle East to thank, where the U.S. is unrelenting in its persecution of Iran.
For its part, Iran's Revolutionary Guards said an oil tanker was hit by an explosion in the Strait of Hormuz and that two others had turned back.
Houthi rebels in Yemen meanwhile allegedly hit two Saudi oil tankers, meaning the risks have spread out from the Strait of Hormuz and risk engulfing the entire region.
The AI Cycle is A Concern
But the new addition to the pro-USD impetus comes from beyond the energy story as concerns grow about the cost of the AI investment cycle.
"A palpable sense of caution is pervading global markets after Alphabet reported stronger-than-expected second-quarter earnings but raised its capital expenditure forecast, reigniting concerns about the sustainability of the AI investment cycle," says Karl Schamotta, a strategist at Corpay.
The big tech companies are siphoning up money to invest, and in doing so are competing against governments who also need to borrow to fund their deficits.
"Yields are ratcheting higher as investors brace for further monetary tightening while absorbing a deluge of Treasury and AI-related issuance," says Schamotta. "Short-term US rates have climbed, with traders now placing near-35% odds on a rate rise at Wednesday's Federal Reserve meeting, a move fully priced in by September, and another expected by March 2027."
That shift is proving supportive of the dollar.
Alphabet, owner of Google, announced it is to spend $205BN this year building out data centres after having already committed $44.9BN in the second quarter alone.
The market thinks the other major hyperscalers will indicate similar uplifts in ambition.
The risk is these companies fail to justify the costs of the investments as AI becomes more and more commoditised.
In a nasty correction scenario, the dollar would benefit thanks to its safe-haven and liquidity advantages.
