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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 39 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 39 institutional desks. No promotion.
The dollar is poised to remain strong as bearish yield curve flattening bolsters its appeal due to rising short-dated rates following another hot inflation print. Per the full note published by ing-think, the Fed's Chris Waller indicated a potential for a 50bp rate hike at the December FOMC meeting, reflecting an increasingly hawkish stance that caters positively to the dollar. With the yield curve experiencing a notable flattening, higher short-dated Treasury yields climbed approximately 20bps, maintaining upward pressure on the dollar against procyclical currencies like the EUR and JPY. This aligns with our internal forecasts where the consensus reflects a narrowing range around current levels, with expectations for further Fed tightening looming on the horizon.
The desk posits that the bearish flattening of the US yield curve is conducive to a stronger dollar as the Fed tightens monetary policy decisively. According to the source, the potential for a 50bp rate hike by the Fed in December has reignited bullish sentiment for USD, particularly highlighted by Chris Waller's comments that influenced a significant spike in short-dated Treasury yields and a 7bp flattening in the 2-10 year curve.
This sentiment is further underpinned by the persistent inflation surprise, marking the third consecutive month of elevated CPI prints, suggesting a heightened risk of aggressive rate hikes moving forward. As the Fed focuses on curbing aggregate demand to tackle inflation, cyclically sensitive currencies are likely to underperform relative to the dollar currently.
Our consensus for EUR/USD is currently at 1.1400, with a range spanning from 1.1000 to 1.2000 by December 2026. Notable forecasts include rbc at 1.2000, nomura at 1.2000, and hsbc at 1.1000 by the same date.
This view aligns with the broader consensus outlook among firms. The desk’s positioning towards a stronger dollar sits at the upper bounds of the prevailing target spread, suggesting a bullish long-term tone against the cross.
Firms aligned with this outlook include investec, bnpparibas, and anz, all showing expectations of dollar strength in the near term. Conversely, firms such as lloyds and hsbc express a more cautious stance on the dollar's trajectory, indicating potentially less favorable performance against the euro and yen.
The dynamics between the EUR/USD and USD/JPY are particularly salient, reflecting the divergence in monetary policy approaches between the Fed and the ECB as well as the BoJ in the face of global inflation pressures. Traders should remain alert to the shifts in these related pairs as they provide signals for cross-market movements.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should watch for further movements in short-dated Treasury yields, with levels near 5.0% serving as a psychological barrier. Look for USD prices potentially testing stronger technical levels in response to central bank signals leading up to the December FOMC meeting.
Risks to this view
A reversal could occur if inflation data unexpectedly cools, or if any Fed member indicates a departure from the hawkish consensus, signaling potential stability over tightening. Additionally, market reactions to geopolitical events may also pose risks to dollar strength if they disrupt market sentiment.
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Neutral | 1.1200 |
UniCredit | Bullish | 1.1600 |
Rabobank | Bearish | 1.1000 |
All 32 desk targets for EUR/USD
Articles FX Daily: Bearish yield curve flattening lifts the dollar Published 07:50 FX Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar is trading close to the year's highs after US inflation came in hot for the third month in a row and the Fed's Chris Waller threatened to vote for a 50bp rate hike in December. Bearish yield curve flattening is typically good for the dollar and bad for procyclical currencies, as the monetary brakes are applied. Expect the dollar to hold gains today Chris Turner , Frantisek Taborsky and Francesco Pesole We're seeing the US yield curve bear flatten, and that's a dollar positive USD: Big moves in short-dated rates The Fed's Chris Waller tossed a hawkish grenade into money markets early yesterday with his threat to vote for a 50bp rate hike at the 9 December FOMC meeting.
He conditioned this on the October CPI data coming in hot for the third month in a row, which it subsequently did. The comments and the CPI print contributed to a 20bp rise in short-dated Treasury yields and a 7bp flattening in the 2-10 year curve. The case is increasingly building for the Fed to take rates into restrictive territory to slow aggregate demand and bring inflation back to target.
That has been the stated aim of Fed Chair Kevin Warsh since his first FOMC press conference in June. While Waller's suggestion of a 50bp hike in December may be too aggressive for many of the FOMC voters who favour gradual tightening, his comments keep alive the prospect that the Fed needs to hike three more times. What does this mean for FX?
Bearish flattening of the US yield curve as the Fed takes rates into restrictive territory is normally good for the dollar against activity currencies. Here, activity currencies underperform as the world's most important central bank wants to slow aggregate demand. We did kind of see that price action yesterday, with the Norwegian krone and Swedish krona underperforming in a strong dollar environment, although the Swiss franc this year always suffers in a higher interest rate environment.
That was the case yesterday. Given what could be an accelerating US labour market, core inflation well above target and a Fed ready to pull the trigger again, we expect the dollar to stay strong and explore the top end of trading ranges over the coming weeks. Don't expect too much from today's session given that it is the US Veterans Day public holiday.
But Friday's October PPI data could deliver the latest instalment of hot price data and keep the dollar bid. DXY should remain near recent highs and could be retesting big resistance at 102.85/103.00 sooner rather than later. Chris Turner EUR: Holding support at 1.11 A high technical level at 1.1110 is currently providing the floor for EUR/USD.
This marks the 50% retracement of the 25 March to 26 Jan rally and is probably a good level for speculative accounts to book some profits on short EUR/USD positions. But the case for a bounce from this support region is weak. Yes, it looks very likely that the ECB will match a Fed hike in December, but the case for an extended ECB tightening cycle is far weaker than that of the Fed.
And despite seasonal trends normally being bullish for EUR/USD in December, we instead think a hawkish Fed will be the dominant theme into year-end and EUR/USD will at some stage want to press the lower end of a 1.10-1.15 range. The eurozone calendar is quiet today, but a few more ECB speakers will likely prove supportive of a hike to 2.75% at the 17 December meeting. Elsewhere, today's national strike in Spain will only remind investors of the political challenges Europe faces later this year and into next.
Expect EUR/USD to trade well within a 1.1140-1.1200 range today. Chris Turner JPY: Manufacturing sector on a roll The latest Reuters Tankan business sentiment index showed a broad upswing in Japanese manufacturing sentiment, which hit a five-year high. Semiconductor and data centre demand drove sentiment and is a reminder of Japan's role as a supplier to the AI data centre build-out.
Locally, Japanese corporate profits have remained strong and, given labour shortages in Japan, wage increases also continue to come in on the strong side. All of the above can feed into the Bank of Japan's view that inflation is now stable at 2.00% and its accommodative monetary policy can be reined in. The broadly strong dollar means that USD/JPY could easily push through resistance at 159, but we increasingly think investors will be looking to acquire cheap yen should USD/JPY push above 160 again.
Chris Turner CEE: It’s all about gas Hungarian inflation remains benign despite headline CPI rising to 2.0% in October. The increase was largely driven by fuel prices, while core inflation remained subdued at 2.1%, with no convincing signs of second-round effects. The bigger test will come during the winter repricing season as higher energy costs feed through.
We expect inflation to reach 3.0% in December and average 3.4% in 2027. For the National Bank of Hungary, inflation already provides room for easing, but global risks remain the key constraint. We expect rates to stay at 5.50% through year-end, with further cuts more likely in the second half of 2027.
In the Czech Republic, headline inflation was confirmed at 2.4%, while core inflation remained unchanged at 3.1%, one-tenth of a percentage point below the Czech National Bank's forecast. This does not significantly alter the outlook for the CNB. Both our projections and those of the CNB suggest that headline inflation will continue to rise, heading toward 3% in December and approaching 4% in January and February due to new-year repricing and base effect.
Subsequently, inflation should begin to decline, and the CNB is expected to maintain a wait-and-see approach following its November rate hike. However, the balance of risks for inflation is tilted to the upside, and an upside surprise would, in our view, lead to further tightening. The rates market has faced heightened volatility in recent days.
Yesterday, we began with lower rates due to a decline in energy prices, but ended higher following a spike in USD rates after inflation data. The key takeaways are, most notably, a renewed strengthening of the US dollar and a continued narrowing of rate differentials in the CEE region. Furthermore, the market should soon begin to differentiate between the relief seen in oil prices and that in gas prices.
While oil has experienced a significant decline, gas has struggled to move lower. Arguably, gas has greater importance to the CEE region, particularly ahead of winter. Consequently, despite the temporary relief in the market driven by falling oil prices, we view the global environment as remaining challenging for the CEE complex, and we maintain our view of higher levels in EUR-cross pairs, as we have noted in previous days.
Frantisek Taborsky FX Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Chris Turner Global Head of Markets and Regional Head of Research for UK & CEE Chris is Global Head of Markets and Regional Head of Research for UK & CEE.
Together with his team, he provides short and medium-term FX recommendations for ING's corporate and… Frantisek Taborsky EMEA FX & FI Strategist Frantisek is an FX & FI Strategist covering EMEA markets, having joined the bank in 2022. He provides short- and medium-term recommendations for ING's corporate and institutional client… Francesco Pesole FX Strategist Francesco is an FX Strategist and has been with the firm since May 2019. His main focus is on the G10 space and, in particular, on European and commodity currencies.
He began his career at Credit… In this article USD: Big moves in short-dated rates EUR: Holding support at 1.11 JPY: Manufacturing sector on a roll CEE: It’s all about gas
How we cover this story
USD strength testing EUR/USD through 1.1100 support; break below triggers technical momentum lower on mean reversion plays.
EUR/USD support at 1.1110 likely temporary; weak bounce momentum suggests USD strength remains favored on any retracement.
EUR/USD breakdown below 1.1100 signals extension of downtrend; monitor support collapse for USD strength confirmation.
October CPI beat 4.08% YoY vs 3.72% prior, lifting DXY above 101 with technical scope toward 103-104; near-term USD strength intact.
EUR/USD spot sits 2.12% below the 32-firm median Dec-26 target of 1.14, with a 0.135 range separating the most bullish and bearish desks.
EUR/USD spot sits 2.08% below the 32-firm median Dec-26 target of 1.14, with a 0.135 range separating Citi's 1.085 floor from Commerzbank's 1.22 ceiling.
EUR/USD spot at 1.1227 sits 1.73% beneath a 32-firm Dec-26 consensus of 1.1425, with a 0.135 dispersion range signalling deep disagreement on the path ahead.
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Danske |
32 investment banks see EUR/USD at 1.1467 by Dec 2026
View the live EUR/USD forecast