Euro Falls to 18-Month Low Against Dollar on Fed Rate-Hike Bets
The euro has notably declined to an 18-month low against the dollar, driven by solid U.S. inflation data and comments from Fed governor Christopher Waller, which have heightened expectations for a potential December rate hike. Market sentiment is shifting significantly, with some traders now predicting a 50-basis-point increase, lending strong support to the dollar. This move underscores a growing divergence between U.S. and Eurozone monetary policy, highlighting potential pressures on the euro, which could continue if inflationary pressures mount in the U.S.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The headline sentiment aligns closely with the upper third as indicated by JPMorgan's positioning.
How firms align
JPMorgan maintains an aligned stance with a target of 1.10, positioning themselves towards the firmer end and suggesting a bullish outlook fueled by recent signals from the Fed. BofA takes a contrary view with their target set at 1.04, indicating a more cautious sentiment in light of European economic indicators.
What the data shows
As the market digests the latest inflation reports, expectations of further rate adjustments from the Fed could maintain upward pressure on the dollar. Recent updates suggest a robust economic outlook for the U.S., which may continue to diverge from Europe's slowed recovery, impacting trade flows and currency valuations.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01EUR/USD hits 18-month low at 1.065 amid rate hike speculation.
- 02Fed rate expectations are driving dollar strength; monitor for continued inflation data.
- 0350-basis-point hike forecasts may reinforce downward pressure on EUR.
- 04Market positioning suggests bullish sentiment for the dollar could persist.
Market implications
Traders should watch the 1.065 level closely as a potential support zone for the euro. Upcoming inflation releases and Fed meeting schedules will be crucial in shaping investor sentiment and positioning further. Our consensus target remains at 1.075.
Risks to this view
A sudden shift in U.S. economic data that signals a slowdown could invalidate the current bullish outlook for the dollar. If inflation's downward trend surfaces unexpectedly, it could lead to a reassessment of Fed rate expectations.
Sentiment by currency
USD+EUR JPY~GBP~Composite USD score: +0.75
Sources & References
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