TD Securities: "Dollar to fall short-term if Fed freezes rates...further hikes will prevent a decline"

▲ United States, Federal Reserve (Fed), Dollar (USD), Interest Rate / AI-generated image

A forecast has emerged that if the US Federal Reserve freezes interest rates, the dollar could immediately fall, but the weakness will not last long.

According to Bitcoin.com, a cryptocurrency specialized media outlet, on July 29 (local time), TD Securities analyzed that if the US Federal Reserve (Fed) maintains its benchmark interest rate, the dollar could face short-term selling pressure. This is explained by the fact that the market has already partially priced in the possibility of a rate hike, so a decision to freeze rates could trigger a dollar weakening.

According to LSEG data, the market has priced in a 34% probability of a July rate hike. The possibility of a rate hike by September has virtually been fully priced in. TD Securities expects the Fed to freeze rates at this meeting. Beth Hammack and Lorie Logan are projected to cast dissenting votes, advocating for a hike.

Even if the dollar declines immediately after the freeze, the extent of the fall is expected to be limited. This is because the outlook for interest rate hikes will remain for the rest of 2026, which could support the dollar. TD Securities anticipates that Fed Chair Kevin Warsh will reaffirm the commitment to price stability without providing a specific interest rate path.

Warsh is expected to acknowledge the recent slowdown in inflation indicators but emphasize that inflation remains at a high level. The initial decline of the dollar and its subsequent recovery will depend on the Fed's decision to freeze rates and the intensity of Warsh's remarks.

[Key Article Summary]

-TD Securities predicted that if the Fed freezes interest rates, the dollar could fall in the short term.

-The market has priced in a 34% probability of a July rate hike, and the possibility of a September hike has virtually been fully priced in.

-The outlook for interest rate hikes in 2026 will remain, limiting the dollar's weakness.

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