The U.S. dollar could weaken after this week’s Federal Reserve meeting even if policymakers leave interest rates unchanged, according to TD Securities, which argues traders have overestimated the chances of a surprise hike.
Fed chair Kevin Warsh is widely expected to announce another hold when the Federal Open Market Committee (FOMC) delivers its decision on 29 July, keeping the benchmark rate in a 3.50% to 3.75% range for a fifth consecutive meeting. CME FedWatch data, cited by Bitcoin.com News, currently puts the probability of no change at between 95% and 98%.
Warsh, who took over from Jerome Powell in May, has yet to preside over a rate move as chair, with the central bank opting for continuity as it assesses inflation and growth data.
Crypto under pressure ahead of decision
Bitcoin has already reflected some of the uncertainty around the meeting. The cryptocurrency dropped to an intraday low of $62,684 on Tuesday before recovering to trade near $63,660, a decline of around 2% on the day. The move extended its losses in July to 4% and triggered about $134m in liquidations of bitcoin long positions in a single session.
Mike McCluskey, co-founder of TX and a former Fidelity executive, portrayed the backdrop in stark terms, warning that a more aggressive tone from the Fed could quickly reopen recent downside levels.
He suggested that if the Fed keeps rates on hold but strikes a hawkish note, or if it unexpectedly raises borrowing costs, “the $58,000 to $60,000 range comes back into view quickly.”
TD Securities: market has ‘overpriced’ hike risk
Despite the market’s strong conviction that the Fed will stand pat, TD Securities believes investors are still misjudging the balance of risks.
The bank argues that the dollar is likely to fall once the decision confirms a hold, because current pricing in rate futures implies too high a probability of a hike that officials are unlikely to deliver.
That assessment builds on an earlier note from its strategists, who questioned why expectations of a rate increase had climbed in tandem with rising oil prices and escalating U.S.-Iran tensions. They concluded that, while geopolitics had injected a risk premium into markets, an actual move by the FOMC in July remained improbable.
TD Securities said that if this “hike-risk” pricing remains in place right up to the announcement, it would amount to one of the biggest gaps in the past decade between what markets were expecting and what the Fed actually did. The bank expects that discrepancy to close in favour of a weaker dollar once Warsh confirms a hold.
Longer-term dollar outlook
TD Securities also projects further dollar softness beyond this week’s meeting. It forecasts a decline of roughly 2% in the second half of 2026, based on the view that the Fed will remain on an extended pause rather than shift towards tighter policy.
In that scenario, policymakers would require more convincing evidence of persistent inflation and a robust labour market before contemplating any hike – conditions the bank does not expect to be met in the near term.
Key data to test Fed message
The timing of the Fed announcement adds another layer of complexity for bitcoin and other risk assets. Warsh’s decision and 2:30 p.m. ET press conference on 29 July come just ahead of two closely watched releases on 30 July: the core personal consumption expenditures (PCE) price index and second-quarter GDP figures.
McCluskey outlined how that combination could fuel a rally if it breaks the right way for crypto. He argued that a hold accompanied by a dovish tone from Warsh, upbeat guidance on artificial intelligence capital expenditure, and “constructive” core PCE data could see bitcoin turn the $65,000 level into a platform for a sustained push towards $68,000 to $70,000 into August.
However, he cautioned that a hawkish surprise from the Fed would risk pulling prices back towards the $58,000 to $60,000 band he highlighted.
Weaker dollar, easier conditions
The TD Securities call on the dollar injects another factor into that trading picture. Historically, periods of dollar weakness have often coincided with gains for bitcoin and other risk assets, as a softer U.S. currency tends to loosen financial conditions globally even when the Fed’s policy rate is unchanged.
Complicating the backdrop further, traders have removed every expected Fed rate cut for 2026 from their projections as a U.S.-Israel conflict with Iran has driven oil prices sharply higher. That shift underlines how geopolitics and energy markets are now tightly entwined with expectations for U.S. monetary policy and the path of the dollar.
