FX Daily: Dollar struggling to shake off debasement trade
At a Glance
The desk contends that despite the dollar's rally at Jackson Hole, it has struggled to maintain momentum, succumbing to broader market sentiments reflecting concerns over long-dated US rates and indications of potential Treasury interventionism, as articulated in the recent commentary. Per the full note from ing, higher US back-end yields, exacerbated by geopolitical tensions between the US and Iran, have prompted a debasement trade, overshadowing short-term hawkish Fed expectations, even as the 2-year SOFR rate remains robust above 4.20%. Our targets for EUR/USD, GBP/USD, and NZD/USD remain in focus, amid market hesitation to chase further dollar weakness without disappointing data ahead of the September FOMC meeting, which is currently deemed unlikely.
Key Takeaways
- 01Dollar underperformance persists despite hawkish Fed signals post-Jackson Hole.
- 02Concerns about long-dated US Treasury yields are driving a debasement narrative.
- 03Market expectations for ISM manufacturing remain robust, but data disappointments could change sentiment.
- 04G10 currencies are gaining traction against the dollar amid geopolitical tensions.
Full Analysis
What the desk is arguing
The desk's thesis makes it clear that the dollar's inability to consolidate post-Jackson Hole gains is attributed to ongoing market concerns regarding long-dated rates and the threat of Treasury interventions. As noted by the source, currencies across the G10 gained against the dollar, suggesting a lack of confidence among traders regarding sustained dollar strength in the current environment.
This sentiment is supported by the performance of the 2-year SOFR rate, which has held firm at 4.20%. However, the overarching concern remains the rise in long-end yields primarily driven by rising oil prices as geopolitical tensions escalate, signaling a potential pivot towards the debasement narrative that traders seem reluctant to dismiss.
Where it sits in our coverage
For EUR/USD, our current spot is 1.1579 with a consensus median target of 1.1700 for March 2026 (range: 1.1200–1.2000). Notably, commerzbank targets 1.1900 for March 2026, while goldman expects a target of 1.1800 for the same timeframe.
Positionally, our view aligns closely with the market's expectations, as we hover near the consensus lower bound, but we stand at the higher end compared to some forecasts, highlighting the divergence in the outlook for euro strength relative to dollar weakness.
How other firms see it
Aligned firms such as commerzbank and goldman have relatively optimistic views on the euro against the dollar, positioning for strength beyond current levels. Conversely, firms like citi and stanchart present more conservative targets, reflecting skepticism about sustained dollar debasement in the face of hawkish Fed signals.
In conjunction with our view on EUR/USD, the trajectory of GBP/USD and NZD/USD speaks volumes about expectations surrounding the respective central banks' next moves. The upcoming BoE and RBNZ decisions are integral to understanding the broader market dynamics thus interacting with the USD's facilitated movements in tandem with geopolitical factors.
Market Implications
Traders should remain vigilant around the levels of 1.17 for EUR/USD and its implications on broader risk sentiment. Any significant geopolitical developments, particularly concerning oil prices, or surprising economic data could serve as pivotal inflection points for dollar trades ahead of the FOMC meeting.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
From the original
Articles FX Daily: Dollar struggling to shake off debasement trade Published 07:34 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar has failed to hold on to post-Jackson Hole gains. We suspect underperformance in long-dated US rates is ke
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