US Dollar: Hurdles cap upside into 2026 – TD Securities

TD Securities strategists argue that, despite stronger United States (US) data and renewed "US exceptionalism" narratives, they are not ready to abandon their bearish US Dollar (USD) thesis for 2026. They highlight only middling US outperformance versus Rest of World (RoW), limited evidence of a prolonged global hiking cycle, and expect Fed policy to stay on hold, pointing to USD downside later this year.

Fed stance and global growth challenge Dollar

"We are not convinced it's time to drop the bearish USD thesis for 2026 yet."

"Despite energy-driven headline inflation shock, core inflations have yet to see broad-based upside to justify a prolonged rate hiking cycle for most countries."

"The Fed also needs to prove it could out-hawk other central banks like in 2022 if data calls for hikes in 2026."

"The Fed will likely drop the easing bias, but pricing in full hikes may be premature."

"Growth holding up in RoW ex-US, risk premium eventually unwinding from SoH [Strait of Hormuz] closure, and moderate rate hikes for global central banks like the ECB [European Central Bank] to close-in on the rate differential gap vs a Fed that continues to stay on hold should lead to more USD downside later this year."

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