FX Daily: Lower energy helps Bessent’s plans
At a Glance
The desk posits that the recent decline in energy prices is positively influencing risk assets and subsequently contributing to a softer dollar, particularly ahead of crucial economic data releases. Per the full note, U.S. Treasury Secretary Scott Bessent's intervention last week, which followed a notable 10-15 basis points drop in longer-dated Treasury yields, suggests he may possess actionable insights that aren't yet fully baked into the market. This dynamic is particularly relevant as we await the U.S. PCE inflation data today, which could further inform the dollar's trajectory amidst a generally stable risk environment.
Key Takeaways
- 01Lower energy prices positively affect risk assets and the dollar.
- 02Bessent's intervention has contributed to a decline in long-end Treasury yields.
- 03Upcoming U.S. PCE data could reinforce risk sentiment affecting the dollar.
- 04Market volatility is decreasing alongside lower yields, favoring carry trades.
Full Analysis
What the desk is arguing
The desk frames this as a clear relationship where lower energy prices are bolstering both risk sentiment and the outlook for the dollar. As indicated in the source commentary, an 8% decline in oil prices since last week has supported a more positive risk environment, aiding Bessent's objectives in the Treasury market.
The actions by Bessent align with a notable market response, as evidenced by the subsequent decline in long-end yields. The upcoming U.S. PCE inflation data release is expected to show a benign print of around 0.2% month-on-month, which could stabilize the dollar and extend the recent easing in financial volatility.
Where it sits in our coverage
For the EUR/USD, our consensus stands at 1.1700 with a range from 1.1200 to 1.2000, while firms like ubs and stanchart project March 2026 targets of 1.2000 and 1.1400, respectively. Similarly, for GBP/USD, our current spot is at 1.3300, aligning with a median target of 1.3400 — with firms like morganstanley forecasting a higher target of 1.3800 for the same period.
This perspective generally falls within the central range of expectations, with our view on EUR/USD sitting in the upper end of the current consensus spread, suggesting a cautiously optimistic outlook supported by macroeconomic factors.
How other firms see it
Aligned to our view are firms like ing and ubs, which express a bullish outlook on both EUR/USD and GBP/USD. In contrast, nomura and citi expect a more tempered performance, projecting lower targets for both pairs, reinforcing a divergence in sentiment around the stabilization of the dollar.
These dynamics are closely tied to current movements in USD/JPY and reflect broader trends influenced by the Bank of Japan's policies, particularly regarding interest rates and inflation expectations.
Market Implications
Watch for the U.S. PCE inflation release today as a potential catalyst for further shifts in dollar strength. A print at or below 0.2% month-over-month could stabilize the dollar near current levels, particularly in the context of ongoing geopolitical concerns.
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: Lower energy helps Bessent’s plans Published 07:45 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Whether lower energy prices were part of Scott Bessent's 'asymmetric information' included in his plans to support long-end Treasu
Related speeches
4 itemsFX Daily: Energy and long bonds remain points of attention
The desk posits that the recent uptick in energy prices and long-dated bond yields may provide temporary support for the US dollar, making a significant retreat more challenging. Per the full note, the DXY dollar index experienced a rebound from recent lows at 99.40, reflecting market sentiment that looks favorably on the USD amidst conditions that hint at potential Fed tightening. Moreover, any further rise in energy costs and yields could renew speculation surrounding a rate hike in September, suggesting a pivotal moment ahead for dollar positioning.
FX Daily: Dollar finally catching up with its drivers
The desk highlights a noticeable uptick in the dollar's performance as it aligns with several positive short-term drivers, including robust front-end rates, escalating energy prices, and diminished risk appetite. Per the full note [source], the DXY index experienced its strongest session since the Jackson Hole speech, a testament to these supportive macroeconomic indicators. Currently, the market's attention is likely focused on the Fed's impending FOMC announcement, which may heighten volatility for the dollar in the short term, particularly if any signs of rate hikes are reinforced. Our current assessment of the USD position is also informed by the latest trend in Treasury yields, which pushed the 10-year rate to 5.0%, maintaining a tolerable premium over the estimates for neutral rates.