FX Daily: Dollar has lost its safe-haven crown
At a Glance
The desk interprets the recent shift in safe-haven demand as a significant blow to the dollar's traditional status, with the yen and Swiss franc gaining favor amidst heightened global risk aversion, particularly concerning AI-related concerns and rising oil prices. Per the full note by ING, the dollar's vulnerability is exemplified by its performance during last session's risk sell-off, as equities declined and bond yields fell. Currently, consensus sentiment indicates a stronger outlook for the euro, as shown in recent forecasts, positioning this trend amid a background of diminished safe-haven appeal for USD.
Key Takeaways
- 01The dollar is facing increased competition as a safe haven from the yen and Swiss franc.
- 02Rising risk aversion due to oil prices and AI concerns is affecting market sentiment.
- 03Current forecasts indicate a target range for EUR/USD around 1.1700, with several institutions seeing potential upside.
- 04The Fed's tightening trajectory remains a pivotal factor influencing currency movements.
Full Analysis
What the desk is arguing
The desk argues that the dollar is losing its status as a safe haven, with increased demand for the yen and Swiss franc among investors. This shift, highlighted by ING's latest commentary, is tied to deteriorating risk sentiment in global markets, impacted by rising oil prices and concerns surrounding AI developments.
Supporting this view, the negative correlation between equities and bonds is reemerging. For instance, 10-year Treasury yields dipped back below 5.0%, indicating reduced reaction to the recent oil price hikes. This suggests that market participants are losing confidence in a prolonged tightening cycle by the Federal Reserve, creating a conducive environment for other currencies to shine.
Where it sits in our coverage
The current spot for EUR/USD is 1.1253, with a median consensus target among firms set at 1.1700. Specific forecasts include: - Rabobank: Dec-26 target of 1.1800 - RBC: Dec-26 target of 1.2000 - Commerzbank: Dec-26 target of 1.2200
The desk's perspective aligns with the cross-firm consensus on the upward potential for EUR/USD, although our spot level sits slightly below the range. The spread between firms is relatively wide, suggesting a divergence of opinion in the outlook, indicating cautious optimism.
How other firms see it
Aligned firms, including Rabobank and RBC, support a stronger euro outlook, while BofA takes a contrary stance, anticipating potential depreciation of the dollar against the euro. Additionally, the implications of the Fed's monetary policy decisions add weight to the dynamics of this currency pair amidst broader market movements.
Relevant pairs include EUR/CHF and USD/JPY, reflecting shifting sentiment and potential volatility driven by changes in central bank policies and economic data releases.
Market Implications
Traders should monitor levels around 1.1300 in EUR/USD as a potential pivot point, especially with further economic data releases like S&P Global PMIs set to impact sentiment. The market is likely sensitive to any unexpected movements in Fed policy or global equities.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 1.1600 |
ING | Bullish | 1.1300 |
Société Générale | Bearish | 1.1000 |
From the original
Articles FX Daily: Dollar has lost its safe-haven crown Published 07:46 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The yen and Swiss franc have emerged as the safe havens of choice as the greenback continues to show some vulnerability to the A