Strategists forecast modest dollar strength in Q3 2026 but expect a 2% decline in H2 as Fed holds rates steady.
TD Securities strategists project the US Dollar (USD) will see modest strength in Q3 2026 as positioning rebuilds, though gains are expected to remain range-bound. They forecast a 2% decline in the dollar during the second half of 2026, citing a return to its traditional safe-haven profile and limited sustained upside.
The Federal Reserve is expected to remain on hold, with a higher bar for rate hikes requiring further evidence of inflation and labor market strength. Global central banks, including the ECB, may also raise rates if supply-side inflation pressures persist, capping dollar gains. USD positioning is currently long but not stretched, leaving room for further buildup if uncertainty around oil, geopolitics, or Fed policy lingers.
Strategists favor expressing USD upside through long USD/CNH forwards, noting that FX volatility may remain elevated but capped due to the Fed’s extended pause and lack of a spot trend breakout.