FX Daily: Porridge cools for goldilocks
At a Glance
The desk posits that recent cooler US economic data has diminished the likelihood of a Federal Reserve rate hike in September, leading to a weaker dollar and bolstered risk assets. Per the full note, this environment supports continued carry trades and long commodity positions, especially as expectations for Fed tightening have been scaled back significantly. Our consensus forecasts for the EUR/USD pair indicate a target of 1.1700 for March 2026, aligning with several firms' outlooks that reflect similar optimism. Notably, the upcoming release of the FOMC minutes from the July meeting could provide further insight but is unlikely to shift the current sentiment barring unexpected geopolitical developments.
Key Takeaways
- 01Recent US retail sales data has weakened the case for a Fed rate hike in September.
- 02The DXY index may continue to trend lower, supporting risk assets and higher-yielding currencies.
- 03EUR/USD consensus target aligns at 1.1700 for March 2026, signaling bullish sentiment.
- 04Forthcoming FOMC minutes may provide clarity, but significant shifts in sentiment are unlikely.
Full Analysis
What the desk is arguing
The desk frames the current narrative around the USD as one of weakness driven by a run of softer economic indicators that complicate the Fed's rate-hiking trajectory. Per the source commentary, the recent retail sales data has significantly lowered the probability of a September hike, with only 7 basis points priced in for that meeting. Additionally, expectations for tightening into next year have been reduced from 50 basis points to just 35 basis points, indicating a notable shift in market sentiment.
This dovish pivot is evidenced by the DXY exploring the lower end of its trading range (99.40-100.00), suggesting that the dollar could trade softer throughout the week. This positions risk assets favorably as traders focus on higher-yielding currencies and commodities, moving away from traditionally safe currencies like the JPY and CHF.
Where it sits in our coverage
For the EUR/USD pair, our consensus target currently sits at 1.1700, with forecast ranges reflecting variability among firms: - Deutsche Bank: Mar26 1.1800, Jun26 1.2500 - Morgan Stanley: Mar26 1.2000, Jun26 1.2300 - Commerzbank: Mar26 1.1900, Jun26 1.2000
This outlook is generally in harmony with market sentiments reflected by other firms but leans toward the upper bounds of the consensus range, specifically with Rabobank and ING also aligning closely to expectations around 1.1700.
How other firms see it
Firms like JPMorgan and Goldman Sachs are similarly predicting upward movement for the EUR/USD, whereas others, including UBS and Rabobank, suggest caution with lower targets around 1.1400. The contrasting views indicate a division about the dollar's immediate strength versus the potential of Eurozone recovery.
The expected trajectories of the GBP/USD and USD/JPY pairs should also be monitored closely, particularly as sentiment shifts focus towards US labor data and the implications for Fed policy. These pairs may exhibit spillover effects based on upcoming central bank commentary and economic prints.
Market Implications
Traders should watch for a potential move in the EUR/USD towards the consensus target of 1.1700 as the dollar remains under pressure. The release of the FOMC minutes on Wednesday could act as a catalyst for volatility, particularly if the language suggests a more hawkish stance than currently anticipated.
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: Porridge cools for goldilocks Published 08:01 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download A slightly cooler run of US data recently has cut the chances of a Fed hike in September. Lower short-dated US rates and a mildly weake
Related speeches
4 itemsFX Daily: Dollar’s turn to get a monetary policy lift
The desk argues that the US dollar is positioned for a supportive lift from anticipated monetary policy changes ahead, driven predominantly by a likely 25bps hike from the Federal Reserve. Per the full note, the latest CPI data points to a robust inflationary backdrop, reinforcing market expectations of continued hawkishness from the Fed. The current spot for EUR/USD is 1.1446, while recent insights show that the consensus target for March 2026 across firms hovers around 1.1700. Traders should watch for signals on broader risk sentiment, especially amid rising oil prices impacted by geopolitical tensions.
G10 FX Talking: Dollar downtrend delayed
The desk's core view is that the recent Fed rate hike delay will support the dollar temporarily, particularly against lower-yielding currencies. This aligns with the belief that a 25bp increase is anticipated on September 16, which could stabilize the dollar in the short term despite downward adjustments to year-end forecasts for the euro and other currencies. Per the full note from ING, the outlook for EUR/USD has shifted to 1.16 from 1.18, reflecting the idea that a sustained decline in the dollar is now postponed until early next spring, when U.S. inflation is expected to align closer to the Federal Reserve's 2% target. With various pairs showing bearish sentiment towards the euro and bullish expectations for USD/JPY, attention is drawn to current positioning and potential market reactions leading up to the Fed decision.