US Dollar: Resilient into FOMC with election risks – TD Securities

TD Securities strategists note that FX markets remain meaningfully long the US Dollar (USD) ahead of the October FOMC, with data showing the Fed faces the strongest G10 hiking pressures. They expect the USD to stay firm near term, but see scope for a post‑midterms relief selloff and year‑end seasonal weakness against G10 majors.

Long positioning and post‑midterms risks

"FX market remains meaningfully long USD going into the FOMC despite the rate hold pricing. We expect the USD to stay resilient in the near-term and see a post-midterms election relief selloff as more likely."

"The USD has gradually retraced lower from the peak last week, but FX market continues to hold meaningful aggregate long USD positions (+1 z-score vs history) going into next week's FOMC meeting. Although the Fed is likely to keep rates on hold at its upcoming meeting, data suggests the Fed has the highest rate hike pressures in G10."

"We see more room for the USD to selloff after the midterms election. The USD has rallied into the midterms election along rising odds of a "Blue Wave" like it did in 2018."

"A relief selloff after the event risk, coinciding with bearish USD year-end seasonality could be at play. Potential US equity underperformance vs RoW on AI growth concerns and a decline in US real yields after US Treasury bottomed out are additional catalysts that could allow the USD to retrace its strength from the past month vs the G10 majors."

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