US dollar may weaken if Fed holds rates steady, TD says
TD Securities suggests the US dollar may weaken if the Federal Reserve keeps interest rates unchanged this week. The note argues markets are overpricing the chance of a rate hike under Fed Chair Kevin Warsh. The federal funds rate is expected to stay in the 3.50%–3.75% range.
TD Securities points to a key risk: past episodes where the Fed held rates steady but adopted hawkish language tended to strengthen the US dollar, especially when it signaled future hikes. In this case, the probability implied by pricing for a July 28–29 rate hike is 22.2%, down from 26% a day earlier.
Traders should focus on the Fed statement and wording. Any indication of potential future rate hikes could reinforce US dollar strength, while softer guidance would likely add downward pressure. Data such as core inflation and employment figures may also shift rate-hike expectations ahead of the next Fed meetings in September and October, where the market assigns higher hike probabilities of 68.5% and 73.0% respectively.
Bullish
TD Securities’ base case is that the US dollar may weaken if the Fed holds rates steady and does not sound meaningfully hawkish. A softer USD typically improves global risk appetite, reduces the relative attractiveness of cash/USTs, and can pull marginal capital into higher-beta assets, including crypto.
Historically, when Fed guidance is less hawkish than markets expect, FX often moves against the dollar and crypto frequently benefits via easier liquidity and lower discount rates for risk assets. In contrast, if the Fed wording surprises to the hawkish side, the US dollar could strengthen and that often pressures crypto in the short term.
So the expected market impact is bullish for crypto, but with an important trigger: the Fed statement and any hints of future hikes are likely to drive intraday volatility. Over the longer horizon, the article notes higher hike probabilities for September/October; that keeps an underlying risk that rates could eventually reprice higher, which may cap upside if yields rise again.