According to Steven Englander, Managing Director of Global Head of G10 FX Research at Standard Chartered Bank, the US dollar index is expected to continue edging higher, driven by structural forces rather than cyclical ones. As reported by CNBC TV18, Englander explains that AI and broader productivity growth are important forces pushing up real interest rates due to higher productivity of capital. The bank's analysis suggests that long-term interest rates are the biggest and most powerful driver of a currency, with the market's belief in sustainable long-term rates being the primary determinant of currency strength. This structural shift toward AI-driven productivity gains represents a fundamental transformation in global economic dynamics that is expected to sustain dollar strength.
Englander expects the Federal Reserve to keep interest rates unchanged through 2026, as reported by CNBC TV18. He does not see any major economic imbalance warranting a policy shift, stating that there is no huge imbalance or emerging imbalance that would make it move. The analysis suggests that higher rates are likely to be the equilibrium level the economy needs, given the forces at play, rather than the Fed actively tightening policy. Short-term policy rates are not expected to be the biggest mover of the dollar, with capital inflows from equity portfolio investments, direct investment, and private equity flows being the primary drivers.
The banking sector is experiencing rapid AI adoption globally, with 47 of the world's 50 largest banks announcing 173 new AI use cases during the past year alone, according to Evident Insights. Within China, Bank of China had already deployed AI across 274 internal application scenarios by mid-2025. This global trend reflects the growing recognition that AI and broader productivity growth are important forces pushing up real interest rates due to higher productivity of capital. The immediate implication is that AI development will become considerably more disciplined and expensive, with banks encouraged to build unified AI development platforms while implementing formal access management procedures for foundation models and generative AI systems.
According to Englander's analysis reported by CNBC TV18, emerging markets are going to continue to be under pressure in FX terms. He notes that the US is probably well positioned to be the first user, or at least gain the greatest initial advantage, from these new technologies, making it hard for emerging markets to keep up. The analysis also highlights that there is a large segment of emerging markets that doesn't get talked about much—so-called frontier markets whose strength may be part of the reason traditional emerging markets are facing pressure. This structural advantage for developed markets is expected to persist as AI productivity gains continue to drive capital flows toward economies with advanced AI infrastructure and regulatory frameworks.
Regarding India's currency, Englander tells CNBC TV18 that there is nothing we see that is terrible about India, but we don't see it as being particularly well advantaged at this stage. The bank's analysis suggests some pressure on the rupee is expected. According to the report, there is nothing we see that is terrible about India, but we don't see it as being particularly well advantaged at this stage. The bank's downward adjustment in dollar-INR at the beginning of May was primarily due to not seeing oil having much further to go. This assessment comes as India navigates the global AI transformation while facing competitive pressures from markets with more advanced AI infrastructure and regulatory frameworks.
As reported by CNBC TV18, Englander identifies that a sharp decline in the dollar would require a significant disappointment in AI-driven productivity growth. He explains that equities are also counting on earnings growth driven by productivity growth and technology, and if that support were removed, the motivation for capital flowing into the US would disappear. The analysis suggests that if we continue to see this kind of robust growth, which drives earnings growth and makes the US an attractive destination for capital, we see dollar strength rather than weakness. This represents a fundamental shift from traditional cyclical factors to structural productivity gains driving currency movements, with the global AI banking adoption trend reinforcing this positive outlook for the US dollar.
