FX Daily: Dollar holds gains into midterms
At a Glance
Heading into US midterms, the dollar is bolstered by strong economic indicators, despite political uncertainties. Recent growth figures indicate a robust 3.4% annualized increase, keeping the Fed's hawkish outlook intact as it prepares for further rate hikes. Per the full note from ing-think, the markets are focused on the midterm elections, with a 70% chance for a Democratic sweep potentially leading to political gridlock which could shift risk sentiment. As the midterms draw near, key U.S. jobs data and business surveys will provide further context on the dollar's strength.
Key Takeaways
- 01The dollar maintained its strength ahead of U.S. midterms.
- 02A strong U.S. economic growth of 3.4% supports a hawkish Fed stance.
- 03Market sentiment could shift based on the outcome of the midterms.
- 04Key U.S. jobs data and ISM business surveys are forthcoming.
Full Analysis
What the desk is arguing
The desk argues that the dollar will maintain its strength as robust economic growth and labor data support a hawkish Federal Reserve stance. Recent statistics show a 3.4% quarter-on-quarter annualized growth in the U.S. economy, alongside persistent inflation pressures. Per the full note from ing-think, uncertainty surrounding the midterm elections may not detract significantly from the dollar's performance given these strong fundamentals.
Nonetheless, if the Democrats take both the House and Senate as predicted by betting markets, this could lead to gridlock concerning fiscal policy, which may introduce volatility in the dollar’s performance post-elections.
Where it sits in our coverage
Currently, our consensus target for EUR/USD sits at 1.15, with a range from 1.1162 to 1.2000 among various firms. Noteworthy targets include HSBC at 1.1000 and RBC at 1.2000 for Dec26.
This view aligns with the broader cross-firm consensus which suggests a diverse range of expectations but remains inherently cautious given potential political developments affecting market sentiment.
How other firms see it
Firms projecting a stronger outlook for the dollar include Mizuho and Commerzbank, while Investec and Rabobank predict more tempered gains for the euro. This divergence speaks to the broader unpredictability surrounding the impact of upcoming U.S. data on FX valuations.
Given the upcoming focus on U.S. jobs data and ISM business surveys, traders should keep a close eye on cash flows in EUR/USD as they may reflect shifts arising from Fed policies and political uncertainties.
Market Implications
Watch for the USD to respond to employment data due later this week. A strong print for jobs could reinforce dollar strength, especially if sentiment remains bullish amid midterm uncertainties. Levels around 1.1253 in EUR/USD may see volatility.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.1000 |
ING | Bullish | 1.1300 |
MUFG | Neutral | 1.1200 |
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Articles FX Daily: Dollar holds gains into midterms Published 07:51 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download At the start of a very busy week for FX markets, the dollar is largely holding onto recent gains. In focus are the US midterms, wher
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