US Dollar: Resilient but upside seen limited – TD Securities

TD Securities notes the US economy and labor market are resilient but not overheating, leading them to push Fed rate hike calls to December 2026 and March 2027. They believe market pricing for Fed hawkishness has peaked and see it as hard to derive persistently bullish Dollar signals from Fed and data alone, even as their scorecard still ranks the USD highest.

Fed path caps Dollar upside potential

"Soft NFP shows the US labor market is not exceptionally heating up and the Fed will hike at a quarterly pace like other central banks. We pushed back our Fed rate hike call to Dec '26 and Mar '27."

"We have likely already seen the peak in market pricing for Fed hawkishness, and the Fed is unlikely to hike beyond what the market has already priced in. It is hard for us to see persistently bullish USD signals from the US data/ Fed channel alone."

"Recent US data shows the Fed also cannot hike rates at a more accelerated pace than once per quarter to give the USD the additional boost from tighter monetary policy channel."

"The USD ranks the highest on our scorecard, supported by favorable rate differentials, resilient growth and strong equity performance. MRSI’s long dollar positioning has remained profitable, with market positioning now long dollars as well."

"This leaves short positions in low-yielding G10 currencies, particularly SEK, CAD and NZD, looking crowded."

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