Dollar Set for Further Decline Despite Fed Hold Expectations

The Federal Reserve is widely expected to keep its benchmark rate steady for a fifth consecutive meeting on July 29, but TD Securities warns that the US dollar could weaken anyway due to overpriced odds of a surprise hike.

According to CME FedWatch data, there's a 95-98% chance the Federal Reserve will hold rates at 3.50-3.75%, making it the fifth straight meeting under Chair Kevin Warsh without a change in policy.

However, TD Securities argues that traders are overestimating the risk of a hike due to tensions with Iran and rising oil prices, which would lead to an overpriced dollar if a hold is confirmed.

The bank forecasts a 2% decline in the US dollar by the second half of 2026 if the Fed holds rates steady, as policymakers are unlikely to deliver a surprise hike despite the current pricing.