Mortgage rates posted their largest increase in four years this week
The recent surge in mortgage rates to 7.28% marks the largest increase in four years, largely driven by a substantial decline in the bond market. This development exacerbates existing pressures on a housing market that is already faltering due to higher borrowing costs. As mortgage rates climb, the implications extend to real yields, which may bolster the USD, reinforcing the Federal Reserve's stance on interest rates. This reinforces the trend of investors favoring USD-denominated assets amid a lack of attractive alternatives in other currencies.
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). Our analysis indicates a general alignment among market participants with the current upward trend for the USD following the rise in mortgage rates.
How firms align
JPMorgan's stance aligns with the prevailing view in the market, maintaining a target of 1.10, while BofA's more bearish position at 1.04 contradicts the broader outlook on the USD appreciating amid rising mortgage rates. Refer to our internal reports for detailed positions from these firms.
What the data shows
Recent forecasts have indicated revisions toward stronger USD momentum, especially with the Fed likely maintaining its rate stance amidst rising real yields. Notably, this aligns with our recent analysis on the potential for further USD appreciation based on macroeconomic trends.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Mortgage rates at 7.28%, highest in 4 years, signaling increased borrowing costs.
- 02Expect continued USD strength as higher real yields attract capital.
- 03Watch for Fed comments on interest rates as a potential market catalyst.
Market implications
Going forward, watch the impact of Fed communications on interest rates, particularly surrounding upcoming FOMC meetings which may drive sentiment. The 1.075 level remains critical for EUR/USD, and a break could reinforce USD strength.
Risks to this view
A significant reversal in this trend would require clear signs of a housing market recovery or unexpected dovish guidance from the Fed that reassures markets about lower borrowing costs, which could shift sentiment away from the USD.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
How we cover this story