TD Securities, through analyst Jayati Bharadwaj, projects a modestly bearish path for the US Dollar into year-end, primarily due to expectations of a divided Congress and resulting fiscal gridlock [1]. The bank asserts that macroeconomic fundamentals will remain the main driver for foreign exchange markets, as gridlock reduces the likelihood of further fiscal stimulus and narrows US versus Rest-of-World (RoW) growth and rate differentials [1]. This scenario is seen as supporting institutional credibility and improved fiscal discipline, which should limit the downside for the Dollar, keeping its outlook modestly bearish to neutral [1].
TD Securities notes that a divided government would modestly narrow US growth and rate differentials, reinforcing their modestly bearish to neutral USD view [1]. The reduced likelihood of new tariffs and diminished White House pressure on the Federal Reserve are expected to ease upside risks for commodities such as copper and aluminum, reinforce Fed independence, and temper the bullish case for gold and silver [1].
The bank identifies a Democratic sweep as the most USD-bullish outcome initially, as markets would likely view it as supportive for Fed independence, institutional checks and balances, and a reduction in fiscal and political risk premia embedded in US assets [1]. Conversely, continued GOP control is seen as the most USD-negative scenario, with prospects for additional tax cuts, higher defense spending, and making more of the OBBBA permanent raising concerns about fiscal sustainability and the deficit trajectory [1].
CONCLUSION
TD Securities expects the US Dollar to follow a modestly bearish to neutral path under Congressional gridlock, with macro fundamentals driving FX. A Democratic sweep could boost the Dollar, while continued GOP control poses downside risks due to fiscal sustainability concerns. Overall, market sentiment is cautious, with institutional credibility and Fed independence seen as stabilizing factors.