FX Daily: Dollar bears chase totality
The desk anticipates that a soft US July CPI print could dampen expectations for a September rate hike by the Fed, providing an opportunity for dollar bears. This sentiment is underscored by projections of 0.1% month-on-month inflation for headline and 0.2% for core, which would lead year-on-year rates to fall to 3.4% and 2.5%, respectively. A soft CPI print could lead to a bullish steepening of the yield curve and a softening of the dollar, particularly against procyclical currencies like the euro. Per the full note source, the prospect of declining inflation could also support risk assets more broadly, positioning for favorable outcomes in the markets ahead.
What the desk is arguing
The desk argues that a softer-than-expected US July CPI report could significantly impact Fed policy expectations and subsequently pressure the dollar. A consensus of soft numbers is anticipated, particularly due to lower gasoline prices and easing wage growth contributing to core inflation rates falling to near the Fed's 2% target. This could help translate into diminished likelihood for a September rate hike, moving market sentiments toward a more risk-on approach.
Particularly, dollar bears are optimistic that a CPI reading of 0.1% month-on-month on core inflation is not only feasible but could eliminate the 50% probability currently ascribed to a rate hike in September. As markets recalibrate, the expected outcome is a benign dollar drop and increases in risk appetite, especially amongst cyclical currencies, suggesting a shift towards a more favorable risk environment.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.1700, with a range between 1.1200 and 1.2000. Notable firm targets include: - goldman: 1.1200 (Dec-26) - bofa: 1.1240 (Dec-26) - deutschebank: 1.1620 (Dec-26)
This view aligns closely with broader market expectations, but it does reflect a somewhat aggressive stance considering the lower end of the current forecast spectrum; firms such as bofa are notably less optimistic with targets towards the 1.1 area.
How other firms see it
Several firms align with this view, anticipating a weaker dollar against a backdrop of easing inflation pressures, including morganstanley and deutschebank. Conversely, firms like investec and citi are positioned more cautiously, projecting comparatively grounded targets.
Related market dynamics to watch include the USD/JPY movement and Fed communication, which may further inform the dollar's trajectory as inflationary data unfolds. The ongoing interaction between these currencies signals a larger narrative surrounding risk assets and central bank policy across major economies.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01A soft US CPI reading could meaningfully reduce Fed rate hike expectations.
- 02Consensus predicts a benign drop in dollar values, enhancing risk asset appeal.
- 03Central to this is a potential core inflation reading of just 0.1% month-on-month.
- 04Watch for shifts in the yield curve reflecting changing market sentiments.
Market implications
Watch for the EUR/USD to approach upwards of 1.17 if the US CPI results meet or are softer than expectations, particularly given the bullish sentiment surrounding procyclical currencies. The positioning of traders ahead of the upcoming data is pivotal in shaping immediate market reactions.
Risks to this view
A significantly higher-than-expected CPI result could reverse the bullish sentiment surrounding risk assets, tightening Fed expectations and strengthening the dollar against the euro. Additionally, any unexpected geopolitical developments could also contribute to volatility in the forex markets.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Commerzbank | Bullish | 1.2200 |
UBS | Bullish | 1.2000 |
Citi | Bearish | 1.1000 |
All 30 desk targets for EUR/USD
Articles FX Daily: Dollar bears chase totality Published 07:40 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Dollar bears will be hoping that today's US July CPI release is soft enough to banish expectations of a September rate hike from the Fed. If so, that would unlock a benign drop in the dollar and keep risk assets broadly supported Chris Turner , Frantisek Taborsky and Francesco Pesole Markets await a US CPI print that could cool September Fed tightening bets USD: Dollar bears are hoping CPI will deliver Friday's soft US jobs data did not weigh heavily on the dollar. The prevailing view here is that inflation trends will primarily drive the next Fed move.
These are on show today in the form of the US July CPI release. Here, consensus is looking for a reasonably subdued set of numbers: 0.1% month-on-month for headline and 0.2% for core. These would see the year-on-year rates drop to 3.4% and 2.5% respectively – inching closer to the Fed's 2% inflation target.
Driving the softer numbers are expected to be lower gasoline prices, broadening signs of rental deflation and soft wages. Given the market looks to be expecting a softer price story today, we would probably need to see a 0.1% month-on-month read on core inflation – which some think is possible. A soft number should drag market pricing of a September Fed rate hike away from a 50% probability in favour of no change.
And a bullish steepening of the yield curve should see the dollar soften – particularly against the procyclical currencies. On the US yield curve, our rates strategy team warns that the long end could also see some pressure from the fiscal side as the US budget deficit deteriorates on tariff rebates. The above should be positive for the risk environment.
Additionally, talk is emerging that President Trump could be trying to launch a cut in the Capital Gains Tax ahead of the midterms in early November. That would prove a mild dollar negative from a pro-risk perspective, but again we should monitor how the long-end of the Treasury curve would take more unfunded tax cuts and also whether this could tip the Fed over the edge into tightening. For today, let's see whether a soft CPI print can break DXY to the downside from its 99.40-100.00 trading range.
Chris Turner EUR: High energy the problem EUR/USD continues to trade in a lacklustre fashion. Better hard activity data and eurozone economic numbers generally surprising on the upside have failed to provide the euro with much of a lift. That may be owed to unresolved tension in the Gulf, which is keeping European natural gas prices above €60/MWh.
In terms of geopolitics, there is very little clarity here, although the latest reports suggest Pakistan and Oman are managing to bring the US and Iran a little closer together. If the US CPI number does indeed come in on the soft side, EUR/USD should be able to challenge last week's high at 1.1580. That is about the extent of a move priced into one-day straddle options.
Much more of a move may be too much to ask in quiet summer markets, given we will also see another round of CPI and jobs data – plus the Jackson Hole Fed symposium – before the Fed decides on policy mid-September. Chris Turner CEE: Geopolitics keeps rates under pressure In Romania, July inflation released this morning showed the first signs of easing, with headline inflation falling from 10.4% to 8.2% YoY, the lowest level since mid-2025. However, the drop mainly reflects base effects, while month-on-month momentum shows no clear slowdown.
We expect inflation to keep declining, but the National Bank of Romania is unlikely to cut rates before early 2027. Elsewhere in the region, today’s calendar is quiet, leaving core markets and geopolitics in focus. Rates sold off sharply at yesterday’s open, led by the Czech market, before signs of US-Iran negotiations brought some relief.
Even so, pricing remains hawkish, with almost three rate hikes priced in for the Czech Republic and two for Poland. While this is not the first sell-off triggered by the US-Iran escalation, CEE rates are underperforming core markets more visibly this time. We think the market has moved too far in pricing tightening, but higher rates should offer some FX protection and support a return to more stable currencies, as seen at the start of the conflict.
We expect some recovery in the koruna and zloty, which saw the sharpest rate moves yesterday, while the forint is likely to remain under pressure from local energy supply concerns. Frantisek Taborsky BRL: Politics finally lands In an otherwise supportive market for FX carry trades, the Brazilian real was a notable under-performer yesterday. Driving that was both a sell-side bank downgrading Brazilian equities to neutral from overweight, and a new poll result ahead of Brazilian presidential elections in early October.
This showed incumbent President Lula opening up a 9% lead over his rival, Flavio Bolsonaro. This seems the first day that politics has really started to hit the real this year. We would not chase the real lower, however. 13.4% implied yields through the one-month non-deliverable forwards and Brazil's position as a net energy exporter should keep the currency reasonably in demand.
Positioning is probably quite crowded long the real now, but we suspect it would require a broadly stronger dollar, rather than local news, to send USD/BRL through 5.22. Chris Turner CEE FX BRL 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: Dollar bears are hoping CPI will deliver EUR: High energy the problem CEE: Geopolitics keeps rates under pressure BRL: Politics finally lands
Sources & References
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