TD Securities Sees USD Weakness by 2026 on Fed Timing Gap

TD Securities Puts US Dollar on a Weaker Path by 2026

TD Securities published a medium-term outlook that places the US dollar on a trajectory toward depreciation by 2026 while keeping the near-term view neutral. This is a structural forecast tied to expected shifts in Federal Reserve policy and the relative performance of the US economy versus its peers. The naive read is simple: the dollar weakens because the Fed cuts rates while other central banks hold or tighten. The better market read requires examining the sequencing. TD Securities expects the Fed to begin easing before the European Central Bank and the Bank of Japan have fully exhausted their own tightening cycles. That timing gap compresses the rate differential that has supported the dollar since 2022.

The Transmission Path Through Yields and Risk Appetite

A weaker dollar scenario does not play out in isolation. The transmission runs through US Treasury yields, which should decline as the Fed cuts. Lower yields reduce the carry advantage of holding dollar-denominated assets. That shift directly pressures the DXY index, which has been range-bound for much of 2025.

For EUR/USD, a weaker dollar implies a move toward the upper end of the recent range. The pair has been constrained by the ECB's own cautious stance. If the Fed cuts first, the euro gains a relative yield advantage. For GBP/USD, the path is similar but complicated by the Bank of England's own inflation concerns. Sterling could outperform if the BoE lags the Fed on cuts.

For [USD/JPY](/markets/how-middle-east-oil-spike-is-weakening-the-japanese-yen), the dynamic is different. The Bank of Japan is normalizing policy, which adds a second source of yen strength beyond the dollar's own weakness. TD Securities' view aligns with a lower USD/JPY over the medium term. The near-term neutral call suggests waiting for clearer signals from both central banks before taking a position.