Societe Generale strategists Kit Juckes and Olivier Korber see the recent pause in the US dollar\u2019s rally as temporary, with the broader trend supported by robust US growth, sticky inflation and a favourable terms-of-trade shock versus Europe and Asia. The bank expects USD strength to persist through the second half of 2026, after the currency has already risen against most major peers.<\/p>\n\n
Higher oil prices are framed as reinforcing the US advantage: the US economy had already been out-performing European and Asian counterparts, and the oil move added a shock that was positive for the US but negative for Europe and Asia. Societe Generale says the dollar has climbed against two thirds of other major currencies and against all but two G10 units, with resource-rich AUD and NOK the exceptions. Of the stated growth drivers\u2014oil, AI capex and fiscal support\u2014only oil is described as retreating.<\/p>\n\n
We see the recent pause in the dollar’s rally as a buying opportunity, not a reversal. The US economy continues to show remarkable strength, with the June jobs report last week showing non-farm payrolls easily beating expectations and holding unemployment at a low 3.7%. This fundamental outperformance against Europe and Asia is the core of our view for the second half of 2026.<\/p>\n\n
Sticky inflation confirms that the Federal Reserve will likely keep interest rates higher for longer than other central banks. The latest PCE data, the Fed’s preferred inflation metric, remains stubbornly high at 2.8%, well above the 2% target. Consequently, market pricing for a rate cut has been pushed back to December, underpinning the dollar’s yield advantage.<\/p>\n\n
For traders, this points to continued weakness in the EUR\/USD pair, especially as recent German industrial production figures showed a surprise contraction. We are looking at buying EUR\/USD put options with September and October expiries to position for a move lower. This strategy allows us to capitalize on dollar strength while strictly defining our risk.<\/p>\n\n
Similarly, the policy divergence between the hawkish Fed and a hesitant Bank of Japan makes long USD\/JPY positions attractive. The interest rate differential continues to favor the dollar, creating persistent pressure on the yen. We are using call options on the USD\/JPY to express this view, targeting new highs before year-end.<\/p>\n\n
Even with oil prices retreating from their peaks to around $75 per barrel, the US’s favorable terms of trade shock is not over. The US remains a net energy exporter, a stark contrast to energy-importing regions like Europe and Japan. This structural advantage, combined with massive domestic AI capital spending, should keep the dollar well-supported.<\/p>\n\n\n\n