USD: Demand for safety and expectations of Fed rate cuts – TD Securities

US Dollar Poised to Gain Amid Geopolitical Tensions

The Global Strategy Team at TD Securities foresees the US Dollar strengthening as investors seek safe assets in response to the ongoing conflict involving Iran. They believe heightened geopolitical uncertainty will likely fuel expectations for additional Federal Reserve rate cuts, and have observed a cautious but widespread move into the Dollar during early market activity.

Safe-Haven Demand and Monetary Policy Outlook Bolster the Greenback

According to their analysis, markets have so far reacted with restraint. There has been a steady, broad-based increase in USD demand, gold prices have surged by approximately $150, 10-year Treasury yields have edged up by about 2 basis points, and Brent crude briefly reached $82 per barrel before retreating to near $78.

The US Dollar’s reputation as a safe haven is expected to be particularly evident. The Swiss Franc is the only major currency outperforming the Dollar. Meanwhile, the Norwegian Krone and Canadian Dollar are projected to do better than the Euro and Australian Dollar, especially given current market positioning. The USDCAD pair is likely to rise initially, with the Canadian Dollar expected to outperform the Australian Dollar, Euro, Swedish Krona, and British Pound.

Despite the Dollar’s resilience, gold could potentially jump by as much as $200 per ounce at the market open, and silver may also experience significant gains.

TD Securities also predicts that TIPS breakevens will widen and the Treasury yield curve will steepen, with 10-year notes likely to rally. While the longer-term inflation impact on the US economy will need further evaluation, the immediate market reaction is anticipated to be shaped by expectations of further Fed policy easing.

Looking ahead, attention will turn to Friday’s Non-Farm Payrolls (NFP) report, where forecasts suggest the unemployment rate will remain at 4.3% and payrolls will increase by 90,000 for February. Additional key data releases include Retail Sales and ISM manufacturing and services indices.

Furthermore, President Trump’s informal 10-15 day deadline for Iran to reach an agreement will come into focus in the coming week, keeping markets alert for any indications of potential US military action.

(This report was generated with the assistance of artificial intelligence and reviewed by an editor.)