FX Daily: October Fed hike remains very data dependent
At a Glance
The desk frames the recent soft US data as supportive of a cautious Fed, which, alongside elevated long-term yields, continues to underpin dollar strength. Per the full note, pricing for an October Fed hike has dipped to below 50% following disappointing consumer sentiment and job openings data, showcasing a growing data dependency in markets. The anticipation of today's releases of PCE inflation and ADP payrolls reinforces this notion, as both could influence short-term rate expectations. As the dollar remains bid—ringing in despite softer economic indicators—the stakes for the upcoming data releases have never been higher.
Key Takeaways
- 01Fed expectations for an October hike have dropped below 50% after weak US economic data.
- 02The dollar continues to strengthen despite soft indicators, reflecting ongoing sensitivity to yield dynamics.
- 03Upcoming PCE and ADP releases are pivotal for shaping market sentiment and rate expectations.
- 04Current EUR/USD spot at 1.1446 remains below the consensus median of 1.1700.
Full Analysis
What the desk is arguing
The desk argues that the recent drop in Fed hike expectations underlines the importance of forthcoming data, specifically the PCE and ADP releases. Given that pricing for an October rate increase has fallen to just 12bp, it highlights the market's sensitivity to economic signals. Per the full note, both the decline in consumer confidence and job openings have raised questions about the robustness of the labor market, further challenging previous assumptions about Fed policy.
Moreover, the dollar's continued strength, even amidst discouraging data, indicates a complex interplay between market sentiment and yield dynamics. The broad risk sentiment remains pressured, particularly for high-beta currencies, while the dollar remains resilient due to the ongoing discourse around long-term bond yields.
Where it sits in our coverage
Our consensus target for EUR/USD stands at 1.1700, with a range stretching from 1.1200 to 1.2000. Firms such as socgen (Dec-26 target of 1.1400) and barclays (1.2100) present a mix of outlooks within this spectrum.
The desk's positioning aligns closely with the consensus view, firmly placed towards the median target, given that the current spot at 1.1446 hovers around the lower bounds suggested by other firms as well.
How other firms see it
Consensus among firms has been largely supportive of a bullish outlook on EUR/USD, particularly from those like nomura and hsbc who see targets around 1.1700 and 1.1000 respectively over the next few quarters. Conversely, firms such as danskebank suggest a more bearish scenario with targets as low as 1.1100, which diverges from more optimistic projections.
Moreover, the movements in CAD and JPY also merit attention, as ongoing BoC and BoJ policies might influence the dollar's behavior in the broader FX landscape.
What the calendar says
With crucial releases like ADP figures and PCE inflation on the docket today, the market's pulse on rate expectations could meaningfully shift depending on the outcomes. Traders should closely monitor these data points as they could dictate dollar performance in the near term.
Market Implications
Watch for EUR/USD to remain influenced by the outcomes of today’s PCE and ADP reports. The 1.15 handle might serve as a key psychological level for traders given its proximity to consensus expectations.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Bullish | 1.1800 |
Danske Bank | Bearish | 1.1100 |
UBS | Bullish | 1.1800 |
From the original
Articles FX Daily: October Fed hike remains very data dependent Published 07:25 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Pricing for an October Fed hike dropped to just below 50% after soft US consumer sentiment and JOLTS yesterday. Expect m
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