US Dollar Outlook: Neutral Near Term, Weaker Through 2026, Says TD Securities

TD Securities has released a revised forecast for the US dollar, projecting a neutral stance in the near term followed by a weakening trend through 2026. The analysis, grounded in macroeconomic indicators and policy expectations, suggests that the greenback’s recent strength may fade as global economic conditions evolve.

Key Drivers Behind the Forecast

The forecast from TD Securities points to several factors that could weigh on the dollar over the medium term. Among them are anticipated shifts in Federal Reserve policy, with potential rate cuts later in 2025 and into 2026, which would reduce the interest rate advantage that has supported the dollar. Additionally, improving economic growth in other major economies, particularly in the eurozone and parts of Asia, is expected to draw capital away from US assets. Trade policy uncertainties and fiscal dynamics also contribute to the view that the dollar’s valuation may decline gradually.

Near-Term Neutrality

In the immediate future, the dollar is expected to remain range-bound. Markets are pricing in a period of relative stability as investors digest mixed economic data from the United States and await clearer signals from the Federal Reserve. The neutral near-term outlook reflects a balance between persistent inflation concerns and signs of slowing economic momentum, which together create an environment where the dollar is unlikely to make decisive moves in either direction.

Implications for Traders and Investors

For currency traders and international investors, the TD Securities outlook suggests a strategic shift may be warranted. Those holding long dollar positions may consider hedging or reducing exposure as the medium-term outlook turns bearish. Conversely, currencies that have been under pressure against the dollar, such as the euro, yen, and certain emerging market currencies, could see appreciation over the forecast horizon. Importers and exporters should also monitor these trends, as a weaker dollar would make US exports more competitive while raising the cost of imported goods.

Conclusion

TD Securities’ forecast of a neutral near-term but weaker dollar through 2026 reflects a consensus among some analysts that the era of dollar dominance may be moderating. While near-term volatility remains possible, the broader trajectory points to a gradual decline in the greenback’s value against major peers. Investors and businesses should factor this outlook into their planning, but remain mindful that currency forecasts are subject to revision as new data emerges.

FAQs

Q1: What does ‘neutral near term’ mean for the US dollar?
It means the dollar is expected to trade within a relatively narrow range against major currencies in the coming weeks to months, without a clear upward or downward trend.

Q2: Why does TD Securities expect the dollar to weaken over 2026?
The forecast is based on anticipated Federal Reserve rate cuts, improving growth in other economies, and fiscal and trade policy factors that could reduce demand for US assets.

Q3: How might a weaker dollar affect global markets?
A weaker dollar typically boosts US export competitiveness, raises import costs, and can support emerging market currencies and commodities priced in dollars, such as oil and gold.