The U.S. Dollar's Tumble (January 29, 2026)

USD depreciation faster than expected, closing in on fundamentals

• The U.S. dollar (USD) has depreciated meaningfully (~2.6% against major currency crosses) since January 16th as uncertainty about U.S. economic and trade policy has increased. That being said, the slide has abated in recent days after Treasury Secretary Bessent reaffirmed the country's "strong dollar" policy. 
• As of the time of writing, the USD had depreciated 3.4% against the yen, 2.9% against the euro and pound, and 2.7% against the Canadian dollar. The appreciation in the yen has been sharper on rumours of possible currency intervention. 
• Safe havens gold (up 15 % to $5,303) and the Swiss franc (+4.6% vs. USD) have both rallied over the same time period.

Key Implications

• The slide in the dollar has been abrupt but is not entirely unexpected. As we wrote earlier this week, our baseline view has maintained that some additional depreciation in the dollar was warranted based on fundamentals. As it currently stands, the declines over the past two weeks have brought the U.S. dollar more-or-less in line with our mid-year targets. Though the latest move has been abrupt, this has been a common feature of currency markets. Last year's dollar slump came quickly but then subsided in the back half of the year as some clarity on trade policy emerged. The prospect for a similar pattern repeating in 2026 is firmly on the table. Bolstering the case for medium-term stability is the likelihood that the U.S. economy is expected to maintain a healthy pace of growth through 2026. 
• Looking forward, risk sentiment could be in the driver's seat as markets digest policy developments and fiscal burdens. Markets are awake and ready to respond to any new developments, opening the door for potentially a further pull-forward of declines (another 3-6%) to bring the USD closer to (or even temporarily undershoot) our year-end forecasts. We maintain the view that the recent depreciation, although rapid, is working to bring the dollar back in line with fundamental values and maintain our longer-run forecasts, but ructions around fiscal and economic policy could add volatility over the near-term. 

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.