Why we’ve changed our Fed and ECB calls
At a Glance
The desk anticipates a synchronized rate hike from both the Federal Reserve and the European Central Bank in December, following recent hawkish signals from both institutions. Per the full note from Commerzbank, this shift is driven by concerns over a supply-side shock from rising energy prices amidst lingering inflationary pressures, much like the landscape seen in 2022. With the expectation for the US 10-year yield to exceed 5% by year-end, traders should brace for volatility in USD-denominated pairs that may arise from these developments. The desk observes that both central banks now appear poised to act in tandem, diverging from traditional trends in which the Fed typically leads. With this context established, the latest consensus targets for EUR/USD and GBP/USD remain in focus as market players adjust their positions accordingly.
Key Takeaways
Full Analysis
What the desk is arguing
The desk is asserting that we may see the Fed and ECB raise interest rates in December, driven by similar inflation challenges and supply-side shocks, as highlighted in the recent commentary from Commerzbank. This represents a significant shift from previous expectations of a dovish path, indicating a more aggressive stance from both central banks as inflation concerns resurface.
This view aligns with our observation of the US 10-year yield projected to rise above 5%, which indicates market belief in sustained tightening moves ahead. The desk emphasizes that both the ECB and Fed are unwilling to repeat the mistakes of previous hikes and subsequent dovish reversals, thus focusing heavily on upcoming monetary policy decisions.
Where it sits in our coverage
Our current spot for EUR/USD stands at 1.1446, with a consensus median target of 1.1684 for December 2026. Notably, specific firm targets include: - morganstanley: 1.2150 - socgen: 1.1400 - investec: 1.1700.
The firm's outlook is largely in line with morganstanley, which has a higher target, while the majority of other firms are aligned closer to the broader consensus, suggesting that our view sits somewhat in the upper bound of targets while still reflecting a cautious bullish sentiment.
How other firms see it
Several banks, including morganstanley and rbc, align with our view of a potential hike in December, supporting an upward bias on EUR/USD. However, firms like commerzbank appear somewhat cautious with their anticipation of less aggressive movements.
As this thesis evolves, ensure to monitor assessments around USD/JPY, as this rate hike trajectory could have spillover effects across correlated currency pairs, impacting their movements dynamically as well.
Market Implications
Key levels to watch include the EUR/USD consensus target around 1.1684, which could act as a resistance point if the ECB delivers on their hawkish stance. Positioning adjustments are likely as traders reassess ahead of December's potential rate hikes.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bearish | 1.1500 |
UBS | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
From the original
Articles Why we’ve changed our Fed and ECB calls Published 11:32 FX Rates United States Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download After hawkish decisions this month, we now expect a rate hike from both the European Central Bank and Federal Reser
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