As good as it gets for the dollar: 3 calls for FX
The dollar remains robust, propelled by resilient US economic growth and persistent inflation expectations, with the Federal Reserve positioned to maintain a hawkish stance until at least next spring. Per the full note from ING, this dynamic should facilitate a USD-supported environment with EUR/USD projected to hover in the 1.10-1.15 range over the coming months. However, this scenario could shift as energy inflation wanes and the Fed's tightening narrative flips to a more dovish outlook in Q2 2027. The ongoing developments in French politics, particularly as presidential elections draw near, could also provide headwinds for the euro. Consensus forecasts indicate a slightly higher medium-term target for EUR/USD, suggesting a divergence from the current outlook.
What the desk is arguing
The desk endorses the view that the dollar should remain supported through early 2027, reflecting strong US growth and high inflation rates. According to ING, the tight monetary policy from the Federal Reserve is likely to persist through the first quarter, keeping upward pressure on the dollar as markets price in the risk of continued tightening before any pivot to easing occurs later in the year.
Support for the dollar can be seen with inflation remaining above 3% and strong economic indicators. The Fed's response will be crucial; should inflation metrics begin to retrace towards their 2% targets, we could expect significant adjustments in short-term interest rates, influencing overall dollar strength.
Where it sits in our coverage
Our current forecast for EUR/USD sees a spot price of 1.1373, with a consensus median target for December 2026 at 1.1425, reflecting a range from 1.1162 to 1.2000. Notable firm targets include: - rbc: December 2026 target of 1.2000 - bnpparibas: December 2026 target of 1.1400 - commerzbank: December 2026 target of 1.2200
This perspective aligns closely with the broader consensus, while our outlook slightly leans towards the lower end of the spectrum, particularly given the $1.10-$1.15 range defined in the ING commentary.
How other firms see it
Several firms share a bullish outlook for the dollar, with mizuho and hsbc projecting targets below our current assessment for EUR/USD. In contrast, firms like cibc and commerzbank paint a more optimistic picture for the euro, with higher targets aligning with an anticipated recovery as US rates soften. This divergence highlights a key theme in FX markets.
Watch USD/JPY for signals regarding dollar strength; as the Bank of Japan maintains its own ultra-loose policy stance, the dynamics in this pair could provide additional context for movements in the USD against other currencies, particularly the euro.
How firms align with this view
Key takeaways
- 01The dollar is expected to remain strong due to robust US growth and high inflation.
- 02EUR/USD is projected to trade in a 1.10-1.15 range in the short term.
- 03Political uncertainties in France may hinder the euro's performance ahead of upcoming elections.
- 04The Fed's potential pivot to easing could lead to a recovery in EUR/USD by late 2027.
Market implications
Traders should monitor the 1.10-1.15 range for EUR/USD, and any shifts in the Fed's narrative around monetary policy could serve as a strong signal for positioning in dollar trades. Watch for developments in France, as political risks may impact euro strength.
Risks to this view
If inflation pressures unexpectedly ease more rapidly than anticipated, it could prompt the Fed to pivot from its current hawkish stance, leading to a weakening dollar. Additionally, should geopolitical events disrupt the forecast, a significant dollar decline could ensue.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Neutral | 1.1200 |
UniCredit | Bullish | 1.1600 |
Rabobank | Bearish | 1.1000 |
Articles As good as it gets for the dollar: 3 calls for FX Published 08:35 FX Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar should stay supported by strong US growth, high inflation and a Fed threatening to tighten before weakening next spring as inflation falls. An AI correction looms large, and what about attractive overseas growth drawing funds away from the dollar? Chris Turner Better news from the AI sector is softening a key threat to the dollar How to read our three calls for 2027 Source: ING "> Source: ING ING’s base call: Dollar stays supported until next spring Our base call assumes that the Federal Reserve stays hawkish in the first quarter, as decent US growth and above-3% inflation keep money markets pricing in the threat of an extended tightening cycle.
That turns in the second quarter, when energy-driven base effects drop out of headline inflation and a return to the Fed’s 2% inflation target sees short-dated US rates move meaningfully lower. That timing also suits events in Europe. French budgetary politics look set to keep a risk premium in the euro ahead of April's elections.
We therefore see EUR/USD trading offered in a 1.10-15 range over the next four to five months. From the second quarter, however, softer US rates, moderating energy prices and clarity on French politics could trigger a gentle recovery in EUR/USD towards 1.18 by year-end 2027. Our risky call: AI bust Energy and AI have been the dominant global macro drivers this year and could well shape FX markets again in 2027.
An AI bust is not the base case, but if it occurred, it would lead to a lower dollar. The IMF estimates the dollar could fall 6% under such a scenario. The nature of the dollar decline could be erratic, however.
If the functioning of the financial system were to come into question, such as dollar liquidity drying up again, the dollar could first rally. But the inevitable Fed support measures to address liquidity needs and the likely large rate cuts would ultimately push the dollar a lot lower. Our bold call: Overseas growth surprises positively EUR/USD rallied sharply in 2017 when Dutch and French elections saw euro-sceptic parties failing to advance.
Having toned down her views on France leaving the euro, a decisive victory by Marine Le Pen in April and greater budget clarity could reassure markets. If eurozone growth continues to defy energy and political headwinds, a rotation to European assets could be the surprise package for EUR/USD. We’re also watching Japan for signs that it could follow South Korea’s lead and deliver stronger growth.
Sources & References
How we cover this story
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