TD Securities: The decline in the dollar is exaggerated, with only limited further downside expected in 2026

TD Securities: Dollar Weakness in 2025 Signals Correction, Not Mass Exodus

According to TD Securities, the U.S. dollar’s decline in 2025 should be viewed as a normalization from previous strength, rather than a sign of investors abandoning the currency. The firm anticipates only a slight further decrease in 2026.

Key Takeaways

• The U.S. dollar dropped about 8% on a trade-weighted basis in 2025, and nearly 10% against major global currencies.
• This decline reversed the dollar’s gains that had accumulated since late 2023.
• Despite the pullback, the dollar remains close to its long-term averages and near multi-decade highs.
• There is no evidence of a rapid shift away from dollar-based financial systems.
• TD Securities projects an additional, modest decline of roughly 3% in 2026.

TD Securities emphasizes that fears of a dramatic global move away from the U.S. dollar are exaggerated, even after a challenging year for the currency. The recent weakness is seen as a correction from unusually high levels, not a fundamental change in the dollar’s role.

In 2025, the dollar lost about 8% in value against a basket of currencies, with an even sharper drop of around 10% versus major counterparts. This ended a period of steady appreciation that began in late 2023. However, the depreciation has only brought the dollar back to levels seen in 2024, keeping it near its historical averages relative to other major currencies.

From a broader perspective, the dollar remains robust by historical standards. Trade-weighted measures show the currency still hovering close to its highest points in the past thirty years, indicating that recent declines do not reflect a loss of confidence or status.

Looking forward, TD Securities expects the dollar to experience a further, but limited, decrease of about 3% in 2026. The firm notes that there is little indication of a rapid shift away from dollar-centered financial systems. Instead, any movement toward de-dollarization appears to be gradual and evolutionary, rather than disruptive.

TD Securities concludes that while long-term diversification away from the dollar continues, it is progressing slowly and is unlikely to cause sudden or disorderly changes in the currency’s value. Therefore, the dollar is expected to see only mild depreciation from a position of relative strength, rather than facing a crisis of confidence or demand.