G10 FX Talking: Dollar upside looks limited
At a Glance
The desk argues that the upside potential for the US dollar appears constrained, aligning with ING's view that the Federal Reserve is unlikely to raise rates until 2027. This conclusion is based on the perceived stability of rates and theFed's commitment to price stability despite recent inflation spikes, diminishing the dollar's bullish momentum. The consensus on pairs like EUR/USD suggests a potential escalation, with estimates now favoring a return to 1.17 as unchanged Fed policy dominates the narrative. Per the full note , the dollar's recent strengths have largely been driven by limited guidance from the Fed, amplifying the weight of forthcoming US economic data in traders' evaluations.
Key Takeaways
- 01The Fed is unlikely to raise rates until 2027, limiting dollar upside.
- 02EUR/USD may approach 1.17 as market expectations adapt to the Fed's stance.
- 03Target views amongst institutions suggest a divergence with **ING** forecasting a more bullish Euro than some others.
- 04Political and economic developments surrounding the US midterms could impact dollar positioning.
Full Analysis
What the desk is arguing
The desk asserts that the dollar's room for growth is limited, primarily due to the anticipated inaction from the Federal Reserve regarding interest rates until at least 2027. Per ING's insights, the market may take until September 2026 to fully adjust its expectations, prolonging a period of uncertainty.
Recent economic data suggests that the current trajectory may not warrant any hike from the Fed this year. With rates likely holding steady, a bullish return toward EUR/USD levels of 1.17 becomes plausible as hedge costs for dollar exposures are expected to decline, particularly with a projected ECB hike in September.
Where it sits in our coverage
For the EUR/USD pair, the current spot trades around 1.1550, with a consensus target set at 1.1700 (range 1.1200–1.2000). Notably, firms such as bofa and deutschebank have pegged their targets around 1.1800 for March 2026.
This stance is consistent with broader market readings, although our internal coverage shows a slight divergence from ing's more optimistic view which targets 1.1700 for March 2026, suggesting alignment around the upper range rather than the lower endpoints seen from firms like socgen.
How other firms see it
Firm perspectives concerning dollar strength vary; monitor sentiments from firms like bofa and deutschebank that also foresee EUR/USD movements toward the 1.1800 area, providing a backdrop to the prevailing caution about the greenback. Contrarily, some firms, including morganstanley, have adopted a more optimistic disposition on dollar strength beyond the immediate futures.
A close watch should be maintained on EUR/USD's interaction with the ECB's decision-making, which could impact hedge ratios and volatility related to the upcoming figures as well as the US political landscape leading into the November midterm elections.
Market Implications
Traders should monitor EUR/USD closely as it approaches key resistance levels around 1.17. A failure to raise rates from the Fed by September could catalyze a shift in positioning toward the euro as hedging costs decline amid anticipated ECB moves.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Goldman Sachs | Bullish | 0.7000 |
MUFG | Bullish | 0.7000 |
J.P. Morgan | Bullish | 0.6800 |
From the original
Articles G10 FX Talking: Dollar upside looks limited Published 13:05 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar has been performing well on the view that the Fed will tighten. ING's take is that the Fed will ultimately ride out this
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4 itemsG10 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.
FX Talking: Dollar downturn delayed
The desk maintains a relatively bullish view on the dollar's strength as improvements in Middle East sentiment and sustained Fed tightening expectations suggest a delayed downturn for the greenback. As highlighted in the source commentary, the Fed's anticipated policy adjustments are likely to sustain this strength into the third quarter, with inflation remaining a persistent challenge. Given the current inflation rate exceeding 4% and robust employment data, the prospect of a dollar decline appears postponed until 2027, leading to projections for EUR/USD to potentially dip to the 1.13-1.14 level. However, the consensus remains divided, with different outlooks for major pairs like USD/JPY and EUR/USD potentially influenced by upcoming ECB and Fed decisions.