FX Daily: Dollar buying returns ahead of FOMC
The desk anticipates a robust performance from the US dollar ahead of the upcoming FOMC meeting, driven by factors including improved AI sentiment and relative positioning in anticipation of further tightening from the Federal Reserve. Per the full note by ing-think, expectations around consumer confidence and geopolitical developments, particularly the Israeli elections, may also influence market dynamics in the short term. Notably, the dollar is currently basking in a supportive backdrop characterized by high energy prices and hawkish rhetoric from Fed officials. This week’s anticipated consumer confidence figures could provide additional context for traders as they gauge the Fed's next steps.
What the desk is arguing
The desk is framing the outlook for the dollar as strongly bullish, indicating a return to dollar buying ahead of the FOMC meeting. According to the source, the internal dynamics of the FX market—particularly favorable AI sentiment—are recalibrating traders’ expectations for the dollar's trajectory.
Notably, the dollar has recently shown good support, helped by positioning as traders prepare for possibly hawkish comments from Fed Chair Kevin Warsh regarding inflation management. The previous consumer confidence index dropped to 81.9 in September, with expectations running slightly lower at 81.5 for the current print.
Where it sits in our coverage
For EUR/USD, our consensus target stands at 1.1700 with a range from 1.1200 to 1.2000, significantly aligning with forecasts from rabobank and investec at 1.1700 and 1.1455 respectively for Dec-26.
This view of a stronger dollar broadly aligns with market sentiment, though it does sit at the lower end of the consensus spread when considering targets from mizuho and commerzbank which indicate levels as high as 1.1900 and 1.2000.
How other firms see it
Aligned firms such as hsbc and rbcc share a similar bullish stance towards the dollar. Conversely, firms like bofa and cibc present a more cautious outlook, suggesting potential for further slippage through bearish targets for the dollar, highlighting divergence in sentiment across the market.
Watch related pairs like NZD/USD for potential volatility, especially with the RBNZ's expected rate hike, which could spill over to alter perceptions of the dollar's strength.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The dollar is showing early strength ahead of the FOMC meeting, driven by hawkish Fed signals and positive AI sentiment.
- 02Consumer confidence metrics are pivotal, with attention on how they influence Fed expectations.
- 03Market positioning suggests a widespread belief in further tightening from the Federal Reserve, which supports a stronger dollar bias.
- 04Geopolitical events such as the Israeli elections may introduce additional volatility in currency markets.
Market implications
Traders should monitor the upcoming consumer confidence data as a key indicator impacting the Fed's communications. A significant disappointment in this print could reposition expectations, potentially dampening the dollar's strength.
Risks to this view
Should consumer confidence slip more profoundly than anticipated, it could lead to a reassessment of the dollar's trajectory and potentially trigger a sell-off if traders perceive the Fed's resolve to tighten is faltering. Additionally, any unexpected geopolitical developments could introduce volatility that may adversely affect the dollar's positioning.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Danske Bank | Neutral | 1.1200 |
UOB | Bearish | 1.1140 |
TMGM | Neutral | 1.1450 |
Articles FX Daily: Dollar buying returns ahead of FOMC Published 07:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The greenback has had a good start to the week – in our view, thanks to AI-sentiment stabilisation and some positioning ahead of tomorrow’s FOMC announcement. Today, the focus will be on US consumer confidence, as well as Israeli elections and their potential impact on the Middle East equilibrium. In New Zealand, we expect a hawkish 25bp hike overnight Francesco Pesole , Chris Turner and Frantisek Taborsky An improved AI-related mood is allowing a firmer dollar ahead of tomorrow's FOMC meeting USD: Stronger into the Fed decision The dollar has found good support early this week, as stabilising AI-related sentiment has allowed markets to reconnect with the broader supportive backdrop of a hawkish Federal Reserve and high energy prices.
Pre-FOMC positioning may also be kicking in, with the forward-looking FX market viewing Chair Kevin Warsh's reiteration of inflation commitments as reinforcing the structural floor for the dollar. As discussed in our preview , we sympathise with this view and expect a broadly supported dollar this week. Today, the US calendar is rather busy.
The highlight is the Conference Board consumer confidence index, which surprisingly plummeted to 81.9 in September. We expect an 81.5 print; consensus is 81.0. Surprises here aren’t likely to be enough to sway tomorrow’s Fed tone, but pricing for further tightening has shown some fragility of late, and evidence of deteriorating consumer mood could enter the equation.
The other releases are all lower tier: September’s durable goods orders and new home sales, as well as the Richmond Fed manufacturing index. Some focus will also be on early results from today’s Israeli election. Polls point to a very tight contest between Prime Minister Benjamin Netanyahu’s coalition and the opposition bloc led by Gadi Eisenkot.
Both, however, are projected to fall short of a parliamentary majority and would require support from smaller parties. Eisenkot has campaigned for a slightly more diplomatic approach towards Iran than Netanyahu’s, focusing on blocking the nuclear programme while discarding the prospect of regime change in Tehran. A strong showing for the opposition bloc could lead to somewhat lower oil prices and a weaker dollar.
However, markets will require much more in terms of peace prospects before pricing out geopolitical risk. Francesco Pesole EUR: Falling back on USD strength After being only modestly touched by last week’s new round of French bond turmoil, the euro is understandably getting very little from the OATs relief rally after Moody’s kept the rating steady at Aa3 on Friday. EUR/USD retains a short-term undervaluation of around 1.0-1.5%, widely attributable to France.
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