FX Daily: Can France wake up the ECB doves?
The desk argues that despite some market anticipation surrounding French economic indicators, the European Central Bank (ECB) will maintain its current interest rates with limited dovish shifts expected. Per the full note from ing-think, the ongoing pressures from elevated energy costs and mixed economic signals suggest that the French risk will not sufficiently sway ECB policy at this time. With the focus on today's U.S. PCE and GDP data, which are seminal for gauging dollar strength, the reaction in EUR/USD should remain contained. Current consensus estimates for the euro show a broad range with notable targets for December 2026 reaching 1.15 from various banks.
What the desk is arguing
The desk contends that French economic developments won't spark a dovish pivot from the ECB. Per the full note from ing-think, elevated energy prices and the overall economic performance suggest the ECB is likely to keep rates unchanged today.
Supporting this view, the current EUR/USD spot is at 1.1253, with limited potential for a bearish reaction given that the market has priced a softer dollar reaction that should hold steady unless significant economic data emerge.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.1500 for December 2026, with a per-firm range observed: - rabobank: 1.1800 - hsbc: 1.1000 - cibc: 1.2200
This view aligns closely with mizuho and bnpparibas at 1.1800, resting at the upper bound of the expected range at 1.15, suggesting a cautious stance as traders monitor the ECB's approach.
How other firms see it
Firms like scotiabank and nationalbankofcanada echo similar concerns about the euro's trajectory, anticipating stability around current levels. Conversely, investec projects a slightly lower outlook amid changing economic indicators, diverging from the bullish sentiment seen in others.
With the interplay between the ECB’s stance and the upcoming U.S. economic data, the outlook for EUR/USD is influenced by the broader dollar performance, specifically as investors watch for shifts indicated by the Fed.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The ECB is expected to keep rates on hold amidst elevated energy prices.
- 02Mixed economic signals imply limited potential for a pronounced dovish shift.
- 03EUR/USD is currently priced at 1.1253 with December consensus targets near 1.1500.
- 04The market is positioning for resilience in dollar strength amid upcoming U.S. economic data.
Market implications
Traders should monitor the EUR/USD level around 1.1253, especially ahead of the upcoming U.S. PCE and GDP reports, which could significantly impact dollar dynamics. A break below 1.12 could signal bearish positioning for the euro.
Risks to this view
A significant drop in energy prices or substantially weaker than expected U.S. economic data could compel the ECB to reconsider its rate stance, leading to unexpected euro strengthening. Additionally, if U.S. inflation data surprises to the upside, it might bolster the dollar and limit euro gains.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Morgan Stanley | Bullish | 1.2150 |
StoneX | Bearish | 1.1000 |
Standard Chartered | Bullish | 1.1800 |
All 30 desk targets for EUR/USD
Articles FX Daily: Can France wake up the ECB doves? Published 07:40 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The ECB will likely keep rates on hold today, but we don’t think French-related risk is enough to drive a material dovish shift yet, especially with energy prices running so high. We expect a contained euro impact.
After a slightly negative reaction to yesterday’s FOMC, we see the dollar finding some support from today’s US PCE and GDP data Francesco Pesole , Frantisek Taborsky and Chris Turner We don't expect a dovish pivot from the ECB today USD: Don't read too much into the softish reaction to the Fed The dollar traded a little softer after the Fed’s hold yesterday, with the USD 2yr swap rate falling around 8bp. As discussed in our review note , the overall message remained hawkish, with Chair Warsh reiterating his firm commitment to price stability, adding that current inflation “remains elevated” while the economy is “expanding at a strong pace”. The modest dovish market reaction was probably due to the lack of clearer guidance towards a December hike, although we’ve now learned not to expect that from Warsh.
On the vote split, Beth Hammack and Lisa Cook’s dissents in favour of a hike were not particularly notable signals in themselves. Cook’s vote is a bit of a surprise, however, given she was considered a more centrist member, and may fuel further ire from the Trump administration, which is still attempting to remove her. From an FX perspective, the picture for the dollar doesn’t change after this Fed meeting.
A December hike remains in play (21bp priced in) and its prospect should prove fairly resilient to a potential oil price decline. We see limited room for bearish follow-through to yesterday’s mild negative USD reaction on the Fed story alone. If anything, some positioning for a softer USD could emerge ahead of next week’s US midterms.
Barring that, consolidation of the dollar’s recent gains looks more likely. Today, we expect September core PCE at 0.3% MoM, in line with consensus and reinforcing the message of a hot inflation environment. Third quarter growth should also be robust at 3.4% QoQ annualised (consensus 3.2%), with consumer spending and tech investment continuing to propel the US economy forward.
We expect a modest positive dollar reaction to today’s numbers. Francesco Pesole EUR: We don't expect a dovish pivot The European Central Bank is likely to keep rates on hold today. We’ve outlined four scenarios in our ECB cheat sheet : three involve a hold, while one very hawkish scenario sees a hike.
Our baseline view is neutral. We don’t think we are at the stage where French bond market turmoil can trigger a significant dovish turn by the ECB, especially with such elevated oil and gas prices (TTF hit €100/MWh in Europe yesterday). We expect much of the market reaction to be driven by the ECB’s tone on France and the prospect of another hike this year.
Markets are pricing in 21bp for December, and in September officials signalled that a rate hike by year-end was in play in their customary tip to the media a few hours after the rate announcement. Signalling that rates are “likely” to be raised in December would constitute a modest hawkish surprise in our view. However, we see a slightly less committal message as more likely, perhaps that a December hike is “possible” or “in play”.
Either way, we don’t expect this meeting to be a turning point for the euro. EUR/USD has shown it’s not yet ready to break below 1.110, and we don’t expect today’s ECB risk event to trigger a major leg lower. A slightly stronger USD on US data may, however, keep modest pressure on the pair.
Francesco Pesole CAD: More tightening will come The Bank of Canada raised rates by 25bp to 2.50% yesterday, in line with market expectations. Stronger activity and growing concerns about cost pass-through suggest this is unlikely to be a one-and-done move, although policymakers stressed they will proceed carefully. We expect another 25bp hike in 1Q27, most likely in January, with the risk that persistently high energy prices bring that move forward to December.
That said, we think markets are too hawkish in pricing around 90bp of tightening over the next 12 months. The BoC’s central estimate of neutral is around 2.75%, and while second-round inflation effects should emerge as firms pass higher costs to consumers, we expect them to remain contained, particularly when it comes to wage growth. Our base case therefore remains that rates peak at 2.75%.
For CAD, oil remains the key swing factor. High prices can keep December hike expectations alive and support the currency, but we remain bearish on oil and think a correction would trigger dovish BoC repricing. We therefore see limited room for CAD gains from the domestic story alone and retain our year-end USD/CAD target of 1.420.
Francesco Pesole CEE: The Fed offers a chance to stabilise, but gas is inviting further weakness The CNB’s "blackout period" begins today in the Czech Republic, and the market is returning following yesterday’s public holiday. On Tuesday, another board member, Jakub Seidler, confirmed his intention to vote for a rate hike at next week’s meeting. Given that he has consistently voted in line with the board majority, we believe a 25bp rate hike – bringing the rate to 4.00% – is a done deal.
In our CNB preview published yesterday , we noted that the market is primarily driven by energy prices, with the CNB having relatively little impact. As the Czech market resumes trading after yesterday’s holiday, we expect a catch-up with PLN rates, likely resulting in an upward move of roughly 8bp. Yesterday’s Fed meeting has only limited implications for the CEE market.
Some relief in the EUR/USD pair, combined with a return of optimism to equity markets, offers a chance for CEE currencies to stabilise today. In the medium term, however, TTF gas prices surpassed €100 yesterday, a factor fuelling further sell-offs across the CEE region – and the rationale behind our bearish outlook on CEE currencies remains intact. 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 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… 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… 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… In this article USD: Don't read too much into the softish reaction to the Fed EUR: We don't expect a dovish pivot CAD: More tightening will come CEE: The Fed offers a chance to stabilise, but gas is inviting further weakness
Sources & References
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