FX Daily: Hawkish Fed minutes keep dollar supported
At a Glance
The desk maintains a bullish outlook on the dollar following the hawkish September FOMC minutes, which indicate a near-term policy rate hike is anticipated by year-end. The expectation of further tightening in response to persistent inflationary pressures, alongside robust Treasury demand, underpins this stance. Per the full note, elevated U.S. Treasury yields are likely to keep the dollar supported, despite recent volatility. This backdrop contrasts with fragile sentiment in European markets, particularly in the EUR/USD and EUR/GBP pairs.
Key Takeaways
- 01The dollar is supported by hawkish FOMC minutes indicating further tightening is likely this year.
- 02Current Treasury yield increases sustain investor interest in dollar-denominated assets.
- 03EUR/USD remains fragile amid political uncertainty in Europe, especially in France.
- 04Market pricing for a 25bps Fed hike in December could still allow for dollar strength in the near term.
Full Analysis
What the desk is arguing
The dollar retains upward momentum driven by the indication from the September FOMC minutes that the Federal Reserve sees another rate hike by year-end as likely. The Fed's focus on inflation and its surprise at the AI-related investment boom suggest policymakers are committed to tightening further as needed. Per the full note, 'most participants' agreed that further hikes may be warranted, which propels expectations for U.S. monetary policy tightening.
Strong demand in the recent U.S. Treasury auction demonstrates lasting interest in Treasuries, suggesting that market participants remain engaged despite rising yields. This invites further dollar strength and creates headwinds for currencies like the euro and pound. The source highlights that financial markets are currently pricing in a 25bps hike in December, followed by an aggressive additional 50bps next year. While our desk argues that this may be too optimistic, we see the dollar remaining well-supported in the interim.
The alternative read would involve a sudden shift in inflationary trends or a dovish pivot from the Fed, both of which currently seem unlikely given the data flow and FOMC's recent communications.
Where it sits in our coverage
For the EUR/USD pair, our median forecast sits at 1.1634 for December 2026, with a range of 1.1200 to 1.2000. Notable firms include: - rabobank: Dec26 1.1800 - bofa: Dec26 1.1500 - rbc: Dec26 1.2000
Our view aligns with the wider consensus, specifically towards the upper end of the current range, favoring the more aggressive tightening narrative against European counterparts.
How other firms see it
Several aligned firms, including socgen and bofa, share a bullish dollar view, reinforcing the perception of U.S. monetary policy divergence from the Eurozone. Conversely, firms like mizuho and citi appear less bullish, reflecting a more tempered outlook for currency pair performances in this environment. Given the current macroeconomic backdrop, watch for developments related to the BoE rate path, which could also influence how GBP/USD moves in tandem with broader dollar strength.
Market Implications
Watch for EUR/USD to remain under pressure, particularly if the market continues to price in Fed rate hikes. With the current spot at 1.1253, a drop towards 1.1200 could see sentiment shift dramatically. Additionally, positioning in USD/JPY is critical as it reflects broader dollar dynamics.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
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Articles FX Daily: Hawkish Fed minutes keep dollar supported Published 07:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar remains supported as September FOMC minutes showed a Fed firmly expecting to hike the policy rate again later in
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The desk suggests that the dollar's downtrends are likely transient, as underlined by persistent hawkishness from the Fed and fragile bond markets. Per the full note from ING, current economic indicators signal limited potential for a drastic dollar correction, with Treasuries reflecting a temporary pause in bearish activity. The desk retains a moderately bullish outlook for the dollar in the near term, bolstered by this underlying environment and expectations for a rate hike in December. Meanwhile, the widening spread in forecasts for currencies like the EUR/USD, currently at 1.1253, reflects varied sentiment among firms regarding the euro's potential resilience against the dollar.
FX Daily: More bond fuel for the dollar rally
The desk hinges its outlook on the burgeoning momentum for the dollar, propelled by fresh signs of bond market strength. Per the full note from ING Economics, the recent uptick in U.S. Treasury yields acts as an undercurrent driving investors towards the dollar. This sentiment correlates with broader market trends indicating that higher yields typically support dollar demand. As we venture forward, the lack of high-impact events on the calendar signifies that any movement in the dollar will likely stem from ongoing bond market trends and not immediate data catalysts.