FX Daily: Much ado about buybacks, softer dollar
At a Glance
The recent US Treasury intervention in the bond market has sparked a discussion regarding its implications for the dollar, with many strategists anticipating a softer USD as a result. Per the full note from ING, this move is viewed less as a crisis of credibility and more as a strategic effort to manage high bond yields, possibly fostering a pro-risk environment that could undermine the dollar. Notably, markets are responding favorably, reflecting a preference for risk assets amidst this context. As of now, the currency pairs EUR/USD and GBP/USD are closely watched, with respective consensus targets of 1.1700 and 1.3400 across various firms, indicating a bullish outlook for the Euro and Pound against the dollar into the next quarters.
Key Takeaways
- 01The US Treasury's intervention is seen as a strategic move to manage high yields rather than a loss of credibility.
- 02Market expectations are leaning toward a softer dollar, particularly favoring the EUR and GBP.
- 03Consensus targets for EUR/USD and GBP/USD are set at 1.1700 and 1.3400, respectively, indicating bullish market sentiment.
- 04Historical precedents suggest that proactive treasury measures often lead to softer dollar trajectories.
Full Analysis
What the desk is arguing
The desk frames this as a shift towards a softer dollar favoring riskier assets, influenced by the recent Treasury actions designed to manage elevated longer-dated yields. Per the full note, this intervention might act more as a signaling exercise, addressing concerns over liquidity and yield management, rather than a direct challenge to US policy credibility. This perspective aligns with the expressed concerns over a looming fiscal consolidation plan aimed at addressing the ongoing budget deficit.
Supporting this view, many traders note that historical precedents, such as the need to counter President Trump's previous tariffs, suggest a pattern where the USD may weaken in response to Treasury asset management strategies. In fact, observing price action in pairs like EUR/USD (currently at 1.1466) and GBP/USD (1.3360) suggest that as the Treasury addresses yield concerns, the implications may favor a pro-risk dollar decline.
Where it sits in our coverage
For the EUR/USD, our median consensus target is 1.1700 with a range from 1.1200 to 1.2000. Key firms indicating bullish sentiment on EUR/USD include: - rabobank: Dec26 target 1.1400 - anz: Dec26 target 1.1400 - morganstanley: Dec26 target 1.1600
This bullish sentiment around EUR/USD contrasts with some caution expressed among FX desks, suggesting divergence in how firms perceive underlying risk factors. Notably, some firms are aligning with optimistic views that envision a move towards the upper end of the forecast ranges.
How other firms see it
The broader street sentiment largely aligns with positive trajectories for the EUR and GBP against the dollar. Aligned firms such as morganstanley and goldman predict targets that reflect this bullish outlook.
Conversely, firms like socgen and citi are projecting more risk-averse targets, suggesting potential retracements in these pairs, which might contribute to volatility amidst the expected USD weakness. It’s important to monitor developments in USD/CHF and USD/JPY as spillover effects from Treasury strategies will be evidenced in price movements across these intersections.
Market Implications
Traders should watch for momentum in EUR/USD as it approaches the 1.1700 target, with risk-on sentiment possibly driving it further. Additionally, any announcement from the Treasury regarding fiscal consolidation could serve as a key catalyst in shaping market expectations for the dollar.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1800 |
ING | Neutral | 1.1700 |
Rabobank | Bullish | 1.1800 |
From the original
Articles FX Daily: Much ado about buybacks, softer dollar Published 06:41 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download This week's US Treasury intervention in the bond market has caused much furore amongst the buy and sell-side financial communi
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