Focus on FOMC turns to the BoJ and BoE in final full week of trading
At a Glance
The desk anticipates increased volatility in the FX markets as the focus shifts from the recent FOMC meeting to upcoming decisions from the BoJ and BoE. Per the full note from MUFG EMEA, the final meeting of the year for the FOMC has set the stage for the US dollar's trajectory, particularly as traders reassess their positions ahead of key central bank announcements. The potential for a rate hike from the BoJ could restore confidence in the JGB market, which has implications for USD/JPY dynamics. With no major calendar events in the next 30 days, market participants will be closely monitoring these central bank meetings for directional cues.
Key Takeaways
Full Analysis
What the desk is arguing
The desk posits that the FX market is on the brink of another pivotal moment as the focus shifts from the recent FOMC meeting to the BoE and BoJ. With the US dollar potentially facing volatility after the Fed's latest moves, the expectations surrounding the BoE's and BoJ's monetary policy decisions could further influence trading dynamics.
The looming meetings of the BoE and BoJ are generating speculation about possible rate hikes, particularly from the BoJ, which may seek to bolster confidence in the Japanese Government Bonds (JGB) market. Such actions, if actualized, might create a stronger yen, while the pound's fate hinges on the BoE's communication around its own rate trajectory.
Where it sits in our coverage
In line with our consensus target of 1.075 for EUR/USD, our position aligns narrowly with expectations of modest dollar strength in the wake of central bank decisions. The projected range spans from 1.04 to 1.12, capturing potential scenarios based on multiple economic outcomes.
Several banks provide insights relevant to this outlook. Notably, firms have varying targets reflecting their unique analyses:
- Barclays: 1.10 (Dec-26)
- JPMorgan: 1.10 (Dec-26)
- Goldman Sachs: 1.08 (Dec-26)
How other firms see it
While our coverage aligns with the cautious optimism on the dollar's performance, some firms express differing views. For instance, BofA has set a lower target, anticipating weaker dollar momentum owing to global uncertainties and Fed's potential dovish tilt proceeding the rate hike cycle.
- BofA: 1.04 (Mar-26)
- Nomura: 1.02 (Mar-26)
- Deutsche Bank: 1.07 (Mar-26)
Market Implications
Current FX positions are likely to react sensitively to the outcomes of the BoE and BoJ meetings, with the potential for increased volatility across major pairs as market participants adjust to new monetary policy signals.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
Goldman Sachs | Bearish | 165.00 |
UOB | Bearish | 163.00 |
Citi | Bearish | 163.00 |
From the original
Derek Halpenny, Head of Research Global Markets EMEA & International Securities is joined by Chris Jakubowski Head of FI FX Sales to discuss the fallout in the FX markets following the FOMC meeting this week and what this final meeting of the year means for the US dollar going fo
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4 itemsPolicy Derby: Rates for the Roses
The desk views the recent shifts in central bank policies as a pivotal moment for FX markets, particularly in the context of rising interest rates. Per the full note [source], the Fed's unexpected four dissents signal a growing hawkishness, while the ECB is poised for rate hikes in June and July. With the Bank of Canada also indicating a readiness to raise rates if inflation persists, the overall sentiment suggests a tightening cycle that could reshape currency valuations. Our consensus target for USD/CAD stands at 1.075, reflecting these dynamics.
Our latest views on the major central banks
The desk anticipates a cautious yet strategic approach from major central banks, particularly the Bank of Japan (BoJ), as they navigate a complex economic landscape. Per the full note [source], the BoJ is expected to maintain its accommodative stance while observing inflation trends and global monetary policy shifts. This aligns with our view that the yen will remain under pressure, with a consensus target of 1.075 for USD/JPY. As we look ahead, the absence of high-impact events in the next month suggests that market movements will be driven more by sentiment and positioning than by data releases.