The AI rally’s next test is not earnings, chips, or the Fed. It is the dollar.
The US Dollar Index (DX-Y.NYB) is breaking above the 100/101 zone, a level that has flipped between support and resistance in recent years. The so-called Dixie is also printing a fresh one-year high, putting the dollar back on investors’ radar after months of AI-led stock market strength.
The easy historical read is risk-off. A stronger dollar can tighten financial conditions, pressure overseas earnings, weigh on commodities, and make life harder for emerging markets.
But the chart is not that simple.
Like many currencies and cryptocurrencies, the dollar index has a long history of false breakouts around obvious levels. A failed move back below 100/101 would put the old trading range back in play and could start a decline back toward last year’s lows near 96-97.
For now, the breakout has momentum. The dollar’s smaller rallies over the past year have come with rising RSI peaks, a sign buyers are pressing harder on each push higher.
That brings the AI rally into the frame.
A stronger dollar is usually treated as bad news for stocks, but it can also reflect demand for US assets. JC Parets, founder of TrendLabs, points to the late-1990s dot-com boom, when the dollar and the S&P 500 (^GSPC) climbed together as global capital chased US technology, US stocks, and US dollars.
The same logic could apply today. If investors around the world still want US exposure because the AI trade lives here, dollar strength does not have to kill the rally. It may be part of the same capital-flow story.
The warning line may be in bonds.
A rising dollar by itself is not enough to call the end of the AI trade. A rising dollar plus a 30-year Treasury yield above 5% would be a tougher setup, turning dollar strength into something closer to a tightening shock for growth stocks.
For now, the dollar breakout is a test, not a verdict.
As Parets said, “A stronger dollar doesn’t always mean fear. Sometimes it means demand.”
Jared Blikre is the global markets and data editor for Yahoo Finance. Follow him on X at @SPYJared or email him at jaredblikre@yahooinc.com.
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