US Dollar Index: Downside risks despite delayed easing

⦿ Executive Snapshot

What: TD Securities strategists express a less bearish outlook on the US Dollar (USD) in the near term while projecting a weaker USD in 2026.
Who: TD Securities, Federal Reserve (Fed), US labor market, global central banks.
Why it matters: The analysis indicates a potential shift in USD dynamics influenced by global economic conditions and geopolitical factors.

TD Securities is adjusting its forecasts, becoming less bearish on the USD due to positive labor data momentum in the US and strong equity performance.
The DXY index at 98.00 is highlighted as a critical level, with expectations that the USD will trade below this level if the Strait of Hormuz reopens.
The firm maintains a downward forecast path for the USD in 2026, citing risks from Iran-related developments and a less hawkish Fed compared to global central banks.

Historically, the USD's strength has been influenced by Fed policy and macroeconomic conditions, with significant events in the Middle East often impacting currency stability.
The current market narrative reflects a convergence of global interest rates toward US levels, which could impact the USD's value and positioning.

The immediate consequence could be a stabilization of the USD in the short term, but longer-term projections suggest potential depreciation due to geopolitical tensions and monetary policy divergences.
Traders and investors may need to adjust their strategies based on the evolving economic landscape, particularly with respect to USD positioning in global markets.

Potential risks include geopolitical tensions, particularly related to Iran, which could create asymmetric risks for the USD.
Additionally, the Fed's monetary policy decisions and their comparative stance against other global central banks could introduce volatility in USD valuations.

Key indicators to monitor include developments regarding the Strait of Hormuz and any shifts in Fed policy as it relates to interest rates.
Future labor market data and equity performance will also serve as critical signals for the USD's trajectory going forward.