TD Securities expects a modest year-end decline for the US Dollar as its haven appeal fades, though persistent French debt concerns and long market positioning will likely cap the currency's downside.
TD Securities argues the USD is no longer an effortless haven and expects a modestly weaker dollar into year-end, as in 2018, if AI-led US equity underperformance persists. Counterweights they cite: long aggregate USD positioning, peak Fed hawkishness already priced, and a EUR impaired by French debt fragility, which caps the downside move.
The euro remains impaired by French debt fragility, which TD says will keep any USD downside muted. That frames the euro as a weak counterpart currency, arguing against EUR strength even in a soft-dollar environment.
TD Securities analysts report that the US Dollar is losing its status as an effortless haven, evidenced by muted gains during recent equity market volatility. The firm expects the currency to drift lower by year-end if AI-led US equity underperformance persists, though significant downside is limited by French debt fragility impacting the Euro and existing long USD positioning.
TD Securities sees US vs rest-of-the-world equity performance as the main USD driver; if AI-led US equity underperformance persists, they expect the USD to end the year modestly weaker, as it did in 2018.
The bank sees no meaningful breakout to the upside because positioning is already long, peak Fed hawkishness looks priced in, and the USD has room to catch down to US equities' relative underperformance.
TD Securities argues the euro is impaired by French debt fragility, so any dollar weakness into year-end will likely be muted rather than translating into a strong euro rally.