FX Daily: More insights into the Fed this week
At a Glance
The dollar remains resilient in the wake of the soft June jobs report, buoyed by expectations of hawkish Federal Reserve signals in the upcoming FOMC minutes. As discussed in the full note source, the market anticipates these minutes will underline the Fed's commitment to restoring price stability, potentially driving the dollar higher against major currencies. Current positioning reflected by G10 deposit rates suggests a preference for dollar carry trades in a relatively quiet FX market. Consensus estimates for the Fed's tightening trajectory have shifted slightly downwards, but the outlook remains broadly positive for the dollar, particularly against the yen and euro.
Key Takeaways
- 01The dollar's resilience persists despite a soft jobs report, supported by expectations of hawkish Fed minutes.
- 02Market pricing for Fed tightening has eased slightly but remains supportive of dollar strength.
- 03Positioning favors carry trades as G10 FX volatility stays low, indicating investor confidence in the dollar.
- 04USD/JPY remains a key pair to watch given intervention fears amid rising rates.
Full Analysis
What the desk is arguing
The desk posits that the dollar is likely to remain supported this week despite a softer jobs report, primarily due to expectations surrounding an upcoming hawkish narrative from the Fed. Per the full note source, market participants are looking towards the FOMC minutes set for Wednesday, which may clarify the Fed's tightening stance amidst ongoing concerns about inflation.
Supporting this view is the fact that short-dated US interest rates have stayed elevated since April, with money markets pricing in 31 basis points of tightening this year. This is a notable adjustment from the peak of 43 basis points observed previously, reinforcing the dollar's current strength and signaling a cautious market attitude towards short positions.
Where it sits in our coverage
For the EUR/USD pair, the current spot is at 1.1434, with a consensus target of 1.2000 by December 2026 and a range from various firms indicating targets from 1.1200 to 1.2000. Notable firm targets include: - citi: Mar26 1.1300 - goldman: Mar26 1.1800 - hsbc: Mar26 1.1700
Our desk's view aligns with the broader market sentiment, as most firms are positioning for a stronger dollar as we approach the Fed's announcement, and it sits at the midpoint of current targets without falling to the lower range of bearish sentiment.
How other firms see it
Overall, firms like citi and scotiabank support the idea of a strong dollar trajectory, anticipating a shift driven by hawkish Federal Reserve rhetoric. Conversely, firms such as uob are more cautious, projecting a weaker dollar against the euro and yen, reflecting different views on carry trade viability.
The movements of USD/JPY will be particularly important to monitor, especially with intervention risks heightened in the context of aggressive Fed policies. Likewise, the EUR/USD trajectory could be influenced significantly by the ECB’s responses to these developments.
Market Implications
Watch for USD/JPY to test resistance levels as intervention fears loom, especially if the FOMC minutes signal a more aggressive tightening cycle. A continued focus on the dollar against euro and yen could lead to increased volatility in those pairs.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
From the original
Articles FX Daily: More insights into the Fed this week 07:42 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Thursday's release of a softish June jobs report hasn't done too much damage to the dollar. And it should remain relatively supported this
Related speeches
4 itemsFX Daily: Dollar consolidates recent gains
The desk maintains a cautiously optimistic view on the dollar, anticipating that it will continue to find support on dips amid a backdrop of improved risk asset stability, particularly in the tech sector. Per the full note [source], the current environment is seen as conducive for the dollar, especially ahead of key US pricing data and monetary policy discussions. The upcoming CPI and PPI data releases will be critical in determining market sentiment towards the Federal Reserve's trajectory, particularly following last week's strong labor market indicators. Current positioning shows a consensus building around a more hawkish Fed, indicating potential dollar gains amidst potential for sustained risk asset consolidation.
FX Daily: FOMC minutes can reinforce dollar floor
The desk views the upcoming release of the FOMC minutes as a significant catalyst for reinforcing the dollar's bullish momentum, particularly in a context where geopolitical risks such as US-Iran tensions are not garnering strong market attention. Per the full note, the FOMC minutes are expected to emphasize a hawkish stance by the Federal Reserve, which should provide support for the dollar across key pairs like EUR/USD and GBP/USD. Given that current market positioning reflects a strong belief in further tightening, a hawkish signal will likely consolidate this outlook. This aligns with wider consensus forecasts pointing to a firmer dollar, even as the current spot rates for major pairs remain below long-term targets.