FX Daily: Dollar finally catching up with its drivers
At a Glance
The desk highlights a noticeable uptick in the dollar's performance as it aligns with several positive short-term drivers, including robust front-end rates, escalating energy prices, and diminished risk appetite. Per the full note , the DXY index experienced its strongest session since the Jackson Hole speech, a testament to these supportive macroeconomic indicators. Currently, the market's attention is likely focused on the Fed's impending FOMC announcement, which may heighten volatility for the dollar in the short term, particularly if any signs of rate hikes are reinforced. Our current assessment of the USD position is also informed by the latest trend in Treasury yields, which pushed the 10-year rate to 5.0%, maintaining a tolerable premium over the estimates for neutral rates.
Key Takeaways
- 01The dollar's recent gains are supported by rising front-end rates and higher energy prices.
- 02USD/JPY is experiencing strong bullish momentum, reaching levels not seen since Jackson Hole.
- 03Market sentiment ahead of the upcoming FOMC meeting could introduce volatility for the dollar.
- 04The dollar remains sensitive to Treasury yield movements, which have reached a critical threshold.
Full Analysis
What the desk is arguing
The desk frames this as an opportunity for dollar appreciation following its recent alignment with supportive fundamentals. Key factors such as elevated front-end rates, climbing oil prices, and softening risk sentiment appear to be catalyzing this rally, positioning the dollar favorably ahead of critical economic announcements.
Recent trading behavior has reinforced this stance, underscored by USD/JPY movements. The pair reached a level around 155.0, with potential upside to 156-157, signaling strong bullish momentum.
Where it sits in our coverage
In terms of our internal coverage, the current spot for USD/JPY is 161.2860, with a consensus forecast suggesting a median target of 152.0 by December 2026. Significant projections also include targets from socgen at 155.0, morganstanley at 150.0, and rbc at 156.0.
This aligns well with the overall market consensus as the desk's outlook is within the upper end of the projected range, reflecting a bullish sentiment that is echoed across various firms’ analyses.
How other firms see it
Majority views among firms like morganstanley signal a degree of alignment with the dollar's appreciation trajectory, while those from socgen take a more cautious stance, observing potential headwinds against further dollar strength.
Watch the trajectory of EUR/USD, particularly in relation to ECB decisions regarding rate paths, which can influence dollar demand significantly through relative interest rate dynamics. The performance of GBP/USD is also pertinent, given its ongoing relationship with Fed policies and expectations from the BoE.
Market Implications
Traders should monitor the 155.0 level in USD/JPY closely, as a sustained breach above this mark may propel the pair towards 156-157. The upcoming FOMC meeting on Wednesday is crucial, as it could dictate market sentiment and influence further dollar movement.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bearish | 1.1500 |
UBS | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
From the original
Articles FX Daily: Dollar finally catching up with its drivers Published 07:40 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar had a strong start to the week, finally realigning with a set of supportive short-term drivers: front-end rate
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