FX Daily: Don’t mess with the dollar near term
At a Glance
The dollar is positioned for continued strength in the near term, bolstered by robust U.S. inflation statistics and a potentially aggressive response from the Federal Reserve. Per the full note from ING, the recent uptick in short-dated U.S. yields, climbing about 40 basis points since Tuesday, signals a shift in market sentiment towards the likelihood of back-to-back rate hikes in December and January. Currently, this momentum is reflected in a hawkish outlook that is unlikely to reverse without significant market disruption, such as a major sell-off in U.S. tech stocks or a drastic change in Fed narratives. In light of these dynamics, predictions for the dollar against key pairs like the euro, Swiss franc, and yen are gaining traction among traders.
Key Takeaways
Full Analysis
What the desk is arguing
The desk maintains that market conditions favor continued dollar strength in the immediate future. The latest developments in inflation and U.S. central bank expectations significantly support this view, as articulated in the ING commentary.
The statistical evidence is compelling: short-dated U.S. Treasury yields have spiked nearly 40 basis points this week alone, driven by heightened expectations for a 50 basis point rate hike in December as hinted by Fed officials. This shift points to an anticipated 85 basis points of tightening, suggesting a more aggressive Fed stance than previously expected.
Where it sits in our coverage
For the EUR/USD, our internal consensus target is 1.1400, with a range from 1.1000 to 1.2000; notable targets include investec at 1.1700 and rbc at 1.2000 for Dec-26. This aligns with the desk’s view, suggesting that the dollar may maintain upward pressure on both the euro and other currency pairs.
How other firms see it
A consensus among multiple firms supports the idea of continued dollar strength, notably with nomura and bofa projecting targets of 1.2000 and 1.1500 for Dec-26 respectively. Conversely, firms like hsbc and mizuho suggest a bearish outlook on the USD, with lower targets on major pairs like EUR/USD and USD/JPY.
The correlation between the Fed's monetary policy and the performance of the USD/JPY and USD/CHF underscores the volatility expected in these pairs—watch USD/CHF for significant resistance near 0.8400, alongside USD/JPY which has breached the psychological level of 160.
Market Implications
Traders should monitor the USD/CHF resistance level of 0.8400 and the psychological threshold of 160 for USD/JPY as key indicators of dollar strength. Potential shifts in Fed communications or economic surprises could shift this dynamic rapidly.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 1.1600 |
Scotiabank | Bearish | 1.0900 |
MUFG | Neutral | 1.1200 |
From the original
Articles FX Daily: Don’t mess with the dollar near term Published 07:56 FX Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Hot US inflation and the prospect of a more aggressive response from the Fed are the themes dominating FX markets curr
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