TD Securities: Euro Likely to Fall Against Dollar Amid Rising Rate Differentials

TD Securities Expects Euro to Decline Further Against Dollar

Widening Rate Differentials and Stronger USD Weigh on Euro Outlook

Strategists at TD Securities believe that the euro (EUR) is poised to see a pullback against the US dollar (USD) in the near term. In a recent note, they highlight a combination of rising interest rate differentials, firm US economic indicators, and weak global portfolio reallocation away from US assets as key drivers for a softer EUR/USD outlook.

USD Gains on Macro and Monetary Policy Edge

The recent uptick in US economic data has reinforced expectations for US dollar strength, especially as the market continues to correlate currency trends with interest rate differentials. TD notes that these dollar-supportive factors are making hedging against future euro losses more expensive for investors, further compounding bearish sentiment on the euro.

“There’s still very little evidence of the asset allocation reset away from the U.S.,” the strategists explained.

EUR/USD Target Revised to 1.11

TD Securities currently forecasts the euro to fall to $1.11 in the upcoming quarter, down from around $1.1347 currently. Should the market continue to lean heavily into rate dynamics, the euro could come under pressure even sooner.

Outlook: Bearish Euro Tone May Persist

Unless eurozone fundamentals improve substantially or there is a surprise shift in European Central Bank (ECB) policy, the EUR/USD pair may remain under bearish pressure. Investors are advised to monitor upcoming ECB commentary, US macro releases, and further changes in rate spread expectations for short-term direction.

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