FX Daily: Boring CPI, boring August?
The desk posits that the recent lackluster CPI data in the U.S. has instilled a sense of directionless trading within the FX markets as we approach the Jackson Hole Symposium. Per the full note, the unexciting 0.1% headline and 0.2% core CPI prints did little to clarify market expectations, resulting in a stronger dollar amidst hawkish positioning. Despite some dovish repricing in Fed rate expectations trimming 5bps for September, there's still 9bps priced in, indicating ongoing bullish sentiment toward the dollar. This sentiment aligns with current market consensus, which has the EUR/USD trading around 1.1419, with predictions ranging up to 1.2000 by mid-2026.
What the desk is arguing
The desk frames this as a period of potential stagnation for FX, particularly for the EUR/USD pair, which may remain locked within tight ranges as the market senses extended indecision. Sources note that market participants are increasingly reluctant to fully price out the chances of further Fed tightening, primarily due to bolstered hawkish views from Fed communications and persistent attachments to prior strong data readings.
Supporting this view, core inflation running at an annualized rate of just 1.6% undermines the case for aggressive Fed policy shifts, which suggests that the U.S. dollar's recent strength may not find immediate challenge despite mild dovish adjustments in rate expectations.
The alternative read would be more pronounced hawkish signals from the Fed or unexpected volatility in geopolitical events; however, given current pricing and sentiment, those factors appear remote.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.1700, with predictions ranging from 1.1200 to 1.2000 by March 2026. Notable firm targets include: - Goldman: 1.1800 for Mar26 - Morgan Stanley: 1.2000 for Mar26 - UBS: 1.2000 for Mar26
This outlook aligns closely with the broader market consensus, especially within the lower to mid-range of expectations, reflecting a common stance shared by several firms. Notably, Deutsche Bank stands at 1.1800 for Mar26, contributing to this consensus view while others, like BofA, suggest a more bearish position at 1.1700.
How other firms see it
Several firms remain aligned with our existing view, suggesting stability within the current ranges for EUR/USD as they price in ongoing U.S. macroeconomic dynamics and Fed policy. Aligned firms include: - RBC: Supportive targets at 1.1700 for Mar26 - Stanchart: Slightly bullish with 1.1600 for Mar26.
Conversely, contrary views emerge notably from BofA, which incorporates significant downward risks into their expectations for the pair. As trading continues, keep an eye on adjunct indicators such as U.S. employment figures and ongoing ECB commentary that could impact volatility in both the dollar and the EUR/USD trades.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Lackluster CPI data has fortified current dollar positioning, keeping markets undecided.
- 02Market expectations for Fed tightening remain cautiously optimistic amidst prevailing strong data.
- 03EUR/USD may trade within narrow ranges leading up to significant catalysts, including Jackson Hole.
- 04Firm's consensus reports reflect little divergence, with mixed forecasts suggesting cautious trading ahead.
Market implications
Traders should monitor EUR/USD as it approaches key support levels around 1.1400, with any adverse movements responding to unexpected Fed comments. Significant shifts may occur ahead of the Jackson Hole Symposium, where any hint of a policy pivot could stir volatility.
Risks to this view
Should the Fed signal stronger-than-expected tightening or if geopolitical developments generate sudden risk aversion, the bearish outlook for the dollar could reverse. Additionally, any robust economic indicators preceding the Jackson Hole could lead to reassessment of dollar strength.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Commerzbank | Bullish | 1.2200 |
UBS | Bullish | 1.2000 |
Citi | Bearish | 1.1000 |
Articles FX Daily: Boring CPI, boring August? Published 07:45 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Yesterday’s unexciting US CPI print left FX with little sense of direction into the end-August Jackson Hole Symposium. What can stop this relentless decline in volatility?
Gulf news, Fedspeak and big surprises in tier-two data are all possible candidates. But there’s a good chance they won’t, and EUR/USD may stay in tight ranges for the next few weeks Francesco Pesole , Frantisek Taborsky and Chris Turner US jobs and CPI reports have knocked 5bp off September FOMC expectations, but 9bp remains in the price USD: Markets remain hawkish after CPI The dollar had a short-lived negative reaction to the spot-on consensus 0.1% headline and 0.2% core month-on-month CPI print yesterday. The driver was a small dovish repricing in Fed rate expectations, which told us that markets were positioned for a slightly hotter print than consensus.
In any case, the release did not provide a conclusive answer for front-end rates and FX direction, and the dollar ended the day stronger, perhaps on some net long rebuilding after this round of US data. In our assessment ( more here ), core inflation running at a 1.6% three-month annualised is weakening the case for Fed tightening. But markets remain hawkish.
The jobs and CPI reports have together knocked 5bp off September FOMC expectations, but 9bp remains in the price. For December, the repricing was -10bp, but a full 25bp hike is still embedded in the curve. This tells us two important things for FX.
First, there is reluctance to price out further Fed tightening, which is keeping dollar bulls active. Hawkish Fed communication is the main culprit. The other factors are a combination of lingering attachment to Warsh’s June price stability commitment, not entirely nullified by the July press conference, and months of strong data before July.
Second, there is plenty of downside for front-end USD rates and, by extension, the dollar, if we are right to think the Fed won’t hike. Anyway, the consensus CPI print was a missed opportunity for FX markets to gain clearer direction ahead of the 27-29 August Jackson Hole Symposium, which still looks very much a ‘live’ event. Next week’s FOMC minutes should offer some insight into the Committee’s latest thinking, but unless we see a major surprise in today’s PPI data or other second-tier releases over the coming weeks, Fed pricing may settle and FX volatility may compress further.
Even so, we expect Fed communication to gradually soften its hawkish tone and keep risks on the downside for USD. In all this, the Gulf situation may regain some relevance for FX, in particular through the risk-sentiment implications of the Strait of Hormuz negotiations. Francesco Pesole EUR: Testing the ranges We retain a preference for EUR/USD upside following the latest US data.
Sources & References
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