TD Securities strategists turn less bearish on the US Dollar (USD) in the near term as the Federal Reserve (Fed) stays on hold and US data, equities and positioning support a range-bound Dollar. However, they still project a weaker USD in 2026, citing asymmetric downside from Iran-related developments and global rates converging toward US levels.

Range-bound now, softer later

"A Fed that is staying on hold throughout the rest of 2026 makes us less bearish on the USD than what we put down in our latest quarterly forecasts. As we have recently argued in Can You Inflate Me Higher, near-term bearish USD drivers have become more elusive after the US economy showed positive labor data momentum and US equities exhibited sharp outperformance over rest of the world in April."

"98.00 on the DXY index has acted as a barometer for Strait of Hormuz reopening in FX. We expect the USD to sustainably trade below this level once a resolution allows the Strait to gradually reopen."

"As a result, a macro backdrop of global rates converging toward the US should continue to weigh on the USD, in our view."

"The Fed staying on hold makes us less bearish on the USD than before. However, we still maintain a downward USD forecast path in 2026 on asymmetric USD risks owing to developments in Iran along with the Fed maintaining a relatively less hawkish stance vs global central banks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)