TD warns U.S. dollar set to drop as market misprices Fed rate risk

By Anya Andrianova

(Bloomberg) — The U.S. dollar will weaken if the Federal Reserve leaves interest rates unchanged this week, according to TD Securities. 

How far the greenback will fall will depend on whether all of the central bank’s decision makers are in agreement with Fed Chairman Kevin Warsh, said strategist Howard Du, who thinks the market is mispricing the risk of rate hikes heading into Wednesday’s policy meeting. 

“In the case of a rate hold decision with two or fewer dissents, the dollar should see knee-jerk weakness as the event risk premium fades away,” Du said in an interview Tuesday.   

If there is no dissent at the July decision “it would be a surprise for the market and suggests Chair Warsh may have managed to achieve some level of consensus-building, which should lead to a relatively larger knee-jerk dollar selloff,” Du said. 

TD expects Bloomberg’s measure of the dollar to fall 0.5% if policymakers are all on the same page. The dollar gauge traded lower along with oil prices Tuesday after U.S. President Donald Trump played down any possible escalation in the Middle East conflict. 

Expectations that a Fed led by Warsh would move to increase rates this year has lifted the dollar. That view combined with haven flows buoyed by the conflict in the Middle East has pushed the gauge of the dollar up nearly 3% since the war began at the end of February.

“The current long dollar positioning prices some lingering risk premium of a hawkish Fed outcome for the July meeting,” said Du. 

Speculative foreign-currency traders, including asset managers and non-commercial players, have added to their wagers on the dollar rising, according to the latest report from the Commodity Futures Trading Commission. They are now most bullish on the greenback since 2015.

While “hawkish momentum is building,” TD strategists expect two dissents from Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan on Wednesday. Under that scenario, the bank predicts the dollar gauge to slip 0.3%.

“Higher oil prices driven by Middle East tensions have increased inflation risks and strengthened the case for a rate hike, but we think more evidence is needed to win majority support,” they said in a note. 

©2026 Bloomberg L.P.

Visited 14 times, 14 visit(s) today

bloomberg Dashboard economic news fed federal reserve inflation Kevin Warsh td US news USD

Last modified: July 28, 2026