TD Securities expects the U.S. Federal Reserve to leave interest rates unchanged in the Federal Open Market Committee decision due on July 29, with markets pricing a fifth straight hold in the 3.50% to 3.75% range. CME FedWatch data cited in the report showed the probability of no change at 95% to 98%.
According to TD Securities, traders are still overpricing the chance of a surprise rate hike, and current market pricing includes a geopolitical risk premium tied to the situation in Iran. The firm said that if the Fed delivers the widely expected hold, the gap between market pricing and actual policy action should narrow.
TD Securities also said that if the Fed refrains from raising rates for an extended period, the U.S. dollar could fall about 2% in the second half of 2026. Before considering any hike, the firm said, the Fed would need clearer evidence of persistent inflation and continued strength in the labor market.
TD Securities said the U.S. dollar could weaken if the Federal Reserve keeps its benchmark rate unchanged in the Federal Open Market Committee decision scheduled for July 29.
The report said Fed Chair Kevin Warsh is set to announce the decision on July 29, and markets broadly expect the benchmark rate to remain at 3.50% to 3.75% for a fifth straight meeting. CME FedWatch data showed the probability of a hold at 95% to 98%.
TD Securities said traders are still overestimating the chance of an unexpected rate hike. It added that current pricing includes a risk premium linked to the situation in Iran. If the Fed holds as expected, the firm said, the mismatch between market pricing and the policy decision should narrow.
The firm expects that if the Fed avoids further hikes for a longer period, the U.S. dollar will fall about 2% in the second half of 2026. TD Securities also said the Fed would need clearer evidence of persistent inflation and a strong labor market before considering a rate increase.
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