US: Midterms, Fed leadership and USD risk – TD Securities

TD Securities argues US political dynamics will shape Dollar and EMFX performance into 2026. They see traditional risk-off USD surges as less plausible in a midterm election year, expect a divided government with Trump likely losing the House, and view prospective Fed Chair Kevin Warsh as a moderate dove who would support continued easing.

Midterms and Warsh shape macro backdrop

"USD bearishness appears consensus, so what can go wrong? The simple answer is that lots can go wrong to fuel a traditional risk-off to lead to USD strength, but that does not seem too plausible in a midterm"

"US midterm elections. Trump is projected to lose the House, and a divided government is the most likely outcome. We do remain watchful of the risk that Trump loses the Senate, but that is a taller order to breach considering this cycle's election map."

"This will put the current administration in a lame duck session with a weakened Trump. Tariffs will remain in place but potentially the pressure on countries to deliver on the promised investments in the US decrease after the midterms, which is supportive for EMFX."

"Will Kevin Warsh be hawkish or dovish? We believe that Warsh will be a moderate dove in 2026 who will make the case for continued easing by downplaying any temporary pickup in inflation."

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