FX Daily: Dollar’s turn to get a monetary policy lift
At a Glance
The desk argues that the US dollar is positioned for a supportive lift from anticipated monetary policy changes ahead, driven predominantly by a likely 25bps hike from the Federal Reserve. Per the full note, the latest CPI data points to a robust inflationary backdrop, reinforcing market expectations of continued hawkishness from the Fed. The current spot for EUR/USD is 1.1446, while recent insights show that the consensus target for March 2026 across firms hovers around 1.1700. Traders should watch for signals on broader risk sentiment, especially amid rising oil prices impacted by geopolitical tensions.
Key Takeaways
- 01Expectations for a 25bps hike from the Fed could support the dollar's strength.
- 02Recent inflation data underpins market views of continuous Fed hawkishness.
- 03Geopolitical factors and rising oil prices may heighten risk aversion, favoring the dollar.
- 04Current EUR/USD consensus target sits at 1.1700, indicating market optimism around the dollar.
Full Analysis
What the desk is arguing
The dollar appears poised for a favorable shift as the Federal Reserve gears up for a potential interest rate hike this week. The desk notes that the recent uptick in domestic inflation, with CPI readings exceeding expectations, solidifies a widely anticipated 25bps increase in rates. This expectation is also reflected in market pricing, which suggests around 22bps have already been discounted ahead of the decision.
Support for the dollar also draws from external factors including rising oil prices due to geopolitical concerns, particularly following Saudi Arabia's pipeline issues, which underscore fragility in risk sentiment. Thus, expectations for a hawkish tone from the Fed could have dual benefits of lifting the dollar and reinforcing a positive USD-Treasury yield correlation.
Where it sits in our coverage
The current consensus for EUR/USD stands at 1.1700 for March 2026, with individual targets varying among firms: - socgen: 1.1700 - morganstanley: 1.2000 - rbc: 1.1600
The desk's expectation of a stronger dollar aligns closely with this consensus, finding itself towards the upper range of expectations, considering the median target set by firms in our coverage.
How other firms see it
Firms such as socgen and morganstanley are aligned with the bullish outlook for the dollar, whereas firms like danskebank express a more cautious stance regarding the Euro. This divergence highlights differing perceptions of future central bank policies and risk dynamics during this pivotal week.
The anticipated Fed meeting directly impacts both the EUR/USD trajectory and the broader USD/JPY outlook, where a synchronized hawkish narrative from the Fed could exert pressure on yields and strengthen the dollar across these pairs.
Market Implications
Traders should monitor the Fed's messaging for clues on future policy direction. A confirmation of a rate hike could set expectations for further dollar appreciation, particularly if accompanied by a hawkish tone. The spot at 1.1446 is critical as movements around this level could indicate shifts in positioning ahead of the announcement.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.1000 |
ING | Bullish | 1.1300 |
MUFG | Neutral | 1.1200 |
From the original
Articles FX Daily: Dollar’s turn to get a monetary policy lift Published 07:54 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download After the ECB’s hawkish tone helped the euro last week, we think the same can happen with the Fed and the dollar, a
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The desk maintains a bullish view on the dollar's resilience, driven predominantly by hawkish signals from the Federal Reserve amidst falling oil prices. Per the full note from ing-think, this environment suggests limited downside for USD, especially against the EUR as market participants remain anchored to Fed hike expectations. Recent labor market data supports expectations for a strong payroll print, further solidifying the dollar's strength. Our current consensus for EUR/USD sits at 1.1684, indicating a cautious outlook on eurozone monetary policy amid these developments.
FX Daily: Dollar holds gains as geopolitics heats up
The desk's analysis underscores that the dollar's strength amid rising geopolitical tensions is likely to persist, driven by solid US economic growth and anticipated Fed tightening. Per the full note [source], the current market environment is characterized by cautious optimism ahead of the US September CPI release, with expectations tilted toward a 75bp rate hike. Our consensus outlook remains stable, anticipating a Euro at 1.1700 for December 2026, which is echoed by various institutional forecasts. With no significant events on the calendar, focus remains on the evolving geopolitical landscape and its influence on energy prices.