The US dollar closed the first half of 2026 near its strongest level in more than a year, capping a dramatic turnaround in market expectations that has reshaped the performance of currencies, commodities and rates. The greenback's climb to a 13-month high stands in stark contrast to the mood at the start of the year, when investors were positioning for a very different outcome.
At the outset of 2026, the prevailing narrative pointed toward a series of Federal Reserve rate cuts, and enthusiasm ran high for assets that tend to benefit from easier policy. Precious metals were among the market's darlings, and expectations of falling US rates weighed on the dollar. Six months on, that script has been rewritten, with the Fed turning hawkish, the dollar surging and many of the year's early winners giving back their gains.
The dollar's advance accelerated into the close of the second quarter, helped by month- and quarter-end demand on the final trading day. The currency has drawn persistent support from the Fed's shift, which saw policymakers hold rates steady, drop earlier signals of easing and open the door to a possible hike. That hawkish stance has kept US yields elevated and burnished the dollar's appeal relative to lower-yielding peers.
The move has left a clear imprint across markets. The yen has been the standout casualty, sliding to a four-decade low against the dollar and prompting Japanese authorities to intervene, while precious metals have reversed sharply, with gold logging its worst quarter in more than a decade. The repricing reflects how thoroughly the outlook for US policy has flipped, dragging a wide range of assets along with it.
For currency markets, the dollar's dominance has been the defining theme of the half. A firm greenback has weighed on emerging-market and Asian currencies, complicated the task of central banks trying to defend their own units, and reinforced the gap between a hawkish Fed and more cautious peers. The strength has been broad-based rather than confined to any single pairing, underscoring that the driver is the US policy outlook rather than idiosyncratic weakness elsewhere.
The turnaround also illustrates how quickly consensus positioning can unwind. The start-of-year conviction in rate cuts and a softer dollar left many investors offside as the data and the Fed's messaging pushed in the opposite direction. Those who had leaned into the easing narrative faced a painful adjustment as the dollar climbed and the assets tied to a dovish outlook rolled over.
As the second half begins, the question is whether the dollar can sustain its ascent. Much will hinge on incoming US data and the tone of Fed officials, with a jobs report and a key policy appearance looming. For now, the greenback enters the new quarter on the front foot, a fitting capstone to a first half in which the market's expectations were turned on their head.