FX Daily: Inflation vs. AI overbuild story dominates
At a Glance
The desk is framing the current FX landscape as one driven by heightened inflationary pressures juxtaposed against a potential correction in AI stocks. Per the full note , market sentiment has fluctuated as inflation remains stubbornly high, exemplified by a significant uptick in September PPI readings. With the 2-10 year Treasury curve flattening by nearly 20 basis points this week, the dollar is positioned well against major currencies as short-term rates remain anchored by persistent inflation indicators.
Key Takeaways
- 01Recent inflation data shows sustained upward pressure, impacting the Fed's rate outlook.
- 02A nearly 20bp flattening of the US Treasury curve suggests shifting investor sentiment.
- 03The dollar remains favored against major currencies as inflationary signals persist.
- 04Localized stories, such as Indonesia's equity turmoil, might influence market volatility.
Full Analysis
What the desk is arguing
The desk emphasizes that conflicting narratives regarding inflation and AI sector performance are shaping FX market dynamics. Recent comments from Nvidia's CEO about improved financials for Coreweave have sparked a modest recovery, but the underlying inflation data maintains pressure for tighter monetary policy, underscoring the dollar's strength.
Alongside this, the treasury market is showing signs of recovery, suggesting that investors find value in long-dated maturities while grappling with inflation risk. The implication is that as long as inflation rates remain elevated, the Fed will likely keep rates higher for longer, supporting the dollar against its peers.
Where it sits in our coverage
For the euro (EUR/USD), our consensus target sits at 1.1700, with a range from 1.1200 to 1.2000, while rabobank forecasts 1.1759 and socgen proposes a more bullish outlook of 1.2000 for December 2026. For the pound (GBP/USD), our consensus level is 1.3403, with bofa projecting a lower target of 1.3400 and morganstanley suggesting a high of 1.5100.
Expectations for the dollar's performance align with broader market consensus that anticipates continued strength against major currencies, particularly if inflation data remains elevated and the Fed maintains its hawkish stance. The current positioning reflects a belief in dollar appreciation against the backdrop of inconsistent growth forecasts linked to AI and inflation.
Market Implications
Watch for the dollar to strengthen against the euro and pound if inflation data continues to exceed expectations, particularly as we navigate into the next month's reporting cycle. The current resistance level for EUR/USD is around 1.1300, with further advancements dependent on upcoming data releases.
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: Inflation vs. AI overbuild story dominates Published 07:36 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Financial markets have calmed a little after Coreweave stock bounced on Thursday. But the debate between intensifying pric
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