TD Securities holds bearish dollar view despite stronger US data and Iran conflict
TD Securities forex strategists say they are not ready to drop their bearish dollar view for 2026, citing only middling US outperformance, a Fed on hold, and expected rate convergence with peers.
Summary: Source: TD Securities forex strategy note
- Analysts are maintaining their bearish dollar outlook for 2026, unconvinced that recent US data strength or the Iran conflict narrative justify a change of view
- US economic momentum is described as middle-of-the-pack against the rest of the world, rather than a clear outperformance versus peers
- Despite the dollar's recent gains during the US-Iran conflict, it remains well below its 2022-23 peaks
- Core inflation globally has not shown the broad-based upside needed to justify a prolonged rate hiking cycle across most major economies
- The Fed is expected to drop its easing bias but is seen staying on hold; pricing in full rate hikes is judged premature
- Dollar downside later in 2026 is anticipated as rest-of-world growth holds up, the Strait of Hormuz risk premium unwinds, and moderate ECB hikes narrow the rate differential gap with a static Fed
Strategists at TD Securities are standing by their bearish US dollar view for 2026, resisting a growing market narrative that stronger American economic data and the Iran conflict have fundamentally altered the currency's trajectory.
In a note to clients, the bank's forex team acknowledged that US data momentum had shifted to positive relative to the European Union and China, but argued this amounted to only middling performance when measured against the broader rest-of-world universe. That distinction matters: a truly exceptional US growth story capable of sustaining dollar strength would require a wider and more durable outperformance, which the strategists say is not yet visible in the data.
The energy shock from the effective closure of the Strait of Hormuz has weighed on sentiment across Europe and Asia, given their status as net energy importers. Yet TD Securities argues this dynamic is unlikely to be the catalyst for a structural dollar recovery. While the conflict provided a short-term safe-haven bid, the dollar remains far below the peaks it reached in 2022 and 2023, and the geopolitical risk premium tied to the Strait is expected to unwind gradually rather than persist indefinitely.
On monetary policy, the strategists draw a sharp distinction between the current environment and the 2022 cycle that last drove meaningful dollar appreciation. Core inflation across most major economies has not shown the kind of broad-based acceleration that would justify a prolonged global rate hiking cycle, they argue. For the dollar to recapture 2022-style strength, the Federal Reserve would need to out-hawk its peers in the way it did then. That bar looks high: the Fed is seen dropping its easing bias in the near term but remaining on hold, while markets pricing in full hikes are judged to be getting ahead of the data.
Meanwhile, the ECB and other central banks are expected to deliver only moderate rate increases, enough to gradually close the rate differential gap with a static Fed rather than widen it in the dollar's favour. Combined with a globally distributed AI productivity tailwind that TD Securities says is not uniquely American, the structural supports for sustained dollar outperformance look limited. The bank's base case remains that these forces converge to produce further dollar downside as 2026 progresses.
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The TD Securities note adds institutional weight to a growing body of opinion that the dollar's conflict-driven bounce is not the start of a sustained recovery. With the Fed seen staying on hold while peers such as the ECB tighten modestly, the rate differential that underpinned dollar strength in 2022 is unlikely to be rebuilt. A gradual unwinding of the risk premium tied to Strait of Hormuz disruption would remove one of the dollar's remaining near-term supports. Positioning implications are meaningful: if rest-of-world growth continues to hold up and the AI productivity tailwind proves globally distributed rather than US-centric, the fundamental case for dollar longs weakens further into year-end.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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