FX Daily: Warsh should keep the dollar supported
At a Glance
The desk anticipates that the dollar will remain well-supported, particularly in light of statements expected from Kevin Warsh at the ECB's Sintra conference. Per the full note source, Warsh's hawkish tone following last month's FOMC meeting has shaped market expectations, with anticipated Fed tightening priced into the curve. Given stronger economic signals, including a recent core PCE print of 3.4% YoY and a robust jobs report, the environment favors dollar strength as traders await further indications from Warsh about monetary policy direction.
Key Takeaways
- 01Expect dollar support bolstered by hawkish guidance from Fed Chair Kevin Warsh at Sintra.
- 02Markets are pricing in significant tightening, with 22 basis points expected as early as September.
- 03Prevailing economic indicators, like PCE and employment numbers, support a sustained dollar bullish outlook.
- 04Cross-currency dynamics pose risks; divergence remains evident, specifically with dollar-euro interactions.
Full Analysis
What the desk is arguing
The desk believes that comments from Fed Chair Kevin Warsh today should reinforce the dollar's strength. Following a tightly controlled narrative from the Fed that emphasizes tight monetary conditions and price stability, market participants are primed for another hawkish stance amidst growing economic confidence.
Warsh's previous remarks at the last FOMC meeting catalyzed a dollar surge, setting a precedent for expectation management moving forward. Notably, the market is currently pricing in a significant 45 basis points of tightening by Q2 of next year, with 22 basis points anticipated as earlier as September. This context makes a potential pushback against current pricing seem unlikely, thus presenting upside risks to the dollar today.
Where it sits in our coverage
For EUR/USD, our consensus target sits at 1.1700 (range of 1.1200–1.2000), with specific targets from firms such as: - jpmorgan: Dec-26 target at 1.1800 - goldman: Dec-26 target at 1.2000 - ubs: Dec-26 target at 1.2000
In the case of USD/CAD, our current spot is 1.3800, with a median target of 1.3823 for Mar-26. The firms are aligned in their bullish outlook on the dollar, with scotiabank and bofa anticipating similar scenarios through mid-2026. Our desk's views slightly align with the higher targets in the market, indicating strong bullish sentiment around the dollar amidst tight monetary conditions.
How other firms see it
Market sentiment reflects a divided approach; firms like citi and tdsecurities project a bullish dollar with March 2026 targets reaching as high as 1.3940 for USD/CAD. Meanwhile, scotiabank shows some divergence in EUR/USD outlook with a target of 1.1200 for December 2026. This discrepancy suggests a broader market debate regarding the sustainability of dollar strength as other currencies struggle to keep pace.
The dollar's trajectory will be further influenced by forthcoming economic indicators and central bank communications, particularly in light of the hawkish tone reiterated by Warsh today.
Market Implications
Traders should keep a close eye on Warsh's remarks today for potential signals that could strengthen the dollar further, especially with the current positioning favoring USD across the board. Significant resistance levels in EUR/USD exist around 1.1700, while USD/CAD being at 1.3800 could indicate pivotal trading opportunities.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
MUFG | — | 1.2000 |
Citi | — | 1.1200 |
UOB | — | 1.1445 |
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Articles FX Daily: Warsh should keep the dollar supported 07:41 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar remains well bid and holding onto the gains made since last month's FOMC meeting. Given the absence of forward guidance from
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