US Dollar: Limited Downside on Softer Payrolls, Says TD Securities

TD Securities sees limited downside for the US dollar even if upcoming payroll data comes in softer than expected, according to a note released this week.

Why the dollar may hold up despite weak labor data

The firm argues that the market has already priced in a significant amount of Fed easing, so a softer jobs report may not trigger a sustained dollar sell-off. As of this week, futures markets imply around 75 basis points of rate cuts by the end of 2025, leaving room for disappointment without a major currency reaction.

TD strategists point out that the dollar has already weakened substantially in recent months, and that much of the negative news is now reflected in the exchange rate. They also note that the euro and yen face their own structural headwinds, which could limit their upside against the dollar.

Market context and investor implications

The dollar index has fallen about 8% from its 2024 peak, driven by expectations of Fed easing and narrowing rate differentials. However, TD Securities suggests that further depreciation may be limited unless the labor market deteriorates sharply or the Fed signals a more aggressive easing cycle.

For investors, the note implies that shorting the dollar at current levels carries a less favorable risk-reward, especially if the payrolls report surprises to the upside. The firm recommends watching the unemployment rate and wage growth, not just the headline payrolls figure, for clearer signals on Fed policy.

What this means for your portfolio

Currency traders should be cautious about adding to dollar shorts ahead of the payrolls release. A soft print could trigger a brief dip, but the medium-term trend may remain range-bound unless the data forces a change in Fed communication. For businesses with FX exposure, hedging costs remain elevated, and locking in rates now might be prudent if the dollar stabilizes.

Conclusion

In summary, TD Securities’ view suggests that the US dollar’s downside is limited even if payrolls disappoint, because expectations are already low and other major currencies face their own issues. The market’s focus will remain on the Fed’s reaction function and whether labor data alters the easing path.

FAQs

Q1: What did TD Securities say about the US dollar?
TD Securities said that the US dollar has limited downside even if payrolls come in softer than expected, as the market has already priced in significant Fed easing.

Q2: Why might the dollar not fall much on weak payrolls?
Because rate cut expectations are already high, and other currencies like the euro and yen have their own structural issues that limit their upside.

Q3: What should investors watch in the payrolls report?
Investors should watch the unemployment rate and wage growth, not just the headline payrolls figure, for clearer signals on Fed policy.