TD Securities Sees Weaker USD Ahead of Midterm Elections

TD Securities' macro team is maintaining a bearish view on the US Dollar, despite a hawkish market reaction to Chair Warsh's Jackson Hole speech. According to Jayati Bharadwaj, Howard Du, and Linda Cheng, incoming US data should steer the Federal Reserve toward a September rate hold decision, rather than a hike. The broader USD trend is seen weaker into year-end as US midterm election scenarios and macro fundamentals drive FX.

The team argues that words alone are unlikely to shift the broader FX narrative, and a durable USD rebound will require more convincing policy follow-through and renewed upside surprises in US data. In the absence of new shocks, incoming data should steer the Fed toward a near-term rate hold rather than a rate hike.

Market attention is expected to gradually shift toward the US midterm election after Labor Day. The USD is predicted to trade moderately weaker to neutral on gridlock, but a 'Blue Wave' could lead to some material knee-jerk USD strength.