FX Daily: Dollar has lost its safe-haven crown
The desk interprets the recent shift in safe-haven demand as a significant blow to the dollar's traditional status, with the yen and Swiss franc gaining favor amidst heightened global risk aversion, particularly concerning AI-related concerns and rising oil prices. Per the full note by ING, the dollar's vulnerability is exemplified by its performance during last session's risk sell-off, as equities declined and bond yields fell. Currently, consensus sentiment indicates a stronger outlook for the euro, as shown in recent forecasts, positioning this trend amid a background of diminished safe-haven appeal for USD.
What the desk is arguing
The desk argues that the dollar is losing its status as a safe haven, with increased demand for the yen and Swiss franc among investors. This shift, highlighted by ING's latest commentary, is tied to deteriorating risk sentiment in global markets, impacted by rising oil prices and concerns surrounding AI developments.
Supporting this view, the negative correlation between equities and bonds is reemerging. For instance, 10-year Treasury yields dipped back below 5.0%, indicating reduced reaction to the recent oil price hikes. This suggests that market participants are losing confidence in a prolonged tightening cycle by the Federal Reserve, creating a conducive environment for other currencies to shine.
Where it sits in our coverage
The current spot for EUR/USD is 1.1253, with a median consensus target among firms set at 1.1700. Specific forecasts include: - Rabobank: Dec-26 target of 1.1800 - RBC: Dec-26 target of 1.2000 - Commerzbank: Dec-26 target of 1.2200
The desk's perspective aligns with the cross-firm consensus on the upward potential for EUR/USD, although our spot level sits slightly below the range. The spread between firms is relatively wide, suggesting a divergence of opinion in the outlook, indicating cautious optimism.
How other firms see it
Aligned firms, including Rabobank and RBC, support a stronger euro outlook, while BofA takes a contrary stance, anticipating potential depreciation of the dollar against the euro. Additionally, the implications of the Fed's monetary policy decisions add weight to the dynamics of this currency pair amidst broader market movements.
Relevant pairs include EUR/CHF and USD/JPY, reflecting shifting sentiment and potential volatility driven by changes in central bank policies and economic data releases.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The dollar is facing increased competition as a safe haven from the yen and Swiss franc.
- 02Rising risk aversion due to oil prices and AI concerns is affecting market sentiment.
- 03Current forecasts indicate a target range for EUR/USD around 1.1700, with several institutions seeing potential upside.
- 04The Fed's tightening trajectory remains a pivotal factor influencing currency movements.
Market implications
Traders should monitor levels around 1.1300 in EUR/USD as a potential pivot point, especially with further economic data releases like S&P Global PMIs set to impact sentiment. The market is likely sensitive to any unexpected movements in Fed policy or global equities.
Risks to this view
The primary risk to this outlook involves unexpected positive developments in risk sentiment that could boost the demand for USD again, potentially triggered by economic data surprises or shifts in Fed communications. Additionally, a significant stabilization in equity markets could lead to a reassessment of safe-haven dynamics.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 1.1600 |
ING | Bullish | 1.1300 |
Société Générale | Bearish | 1.1000 |
Articles FX Daily: Dollar has lost its safe-haven crown Published 07:46 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The yen and Swiss franc have emerged as the safe havens of choice as the greenback continues to show some vulnerability to the AI story. A further widening in French spreads has not materially hit the euro, but that correlation may spike again soon. Today, PMIs are published, but focus will remain primarily on global equities, France and oil Frantisek Taborsky , Francesco Pesole and Chris Turner The dollar’s vulnerability to the AI story is driving safe-haven demand elsewhere, notably towards the yen and Swiss franc USD: Losing safe-haven appeal Yesterday was a rough session for risk sentiment, as global equities sold off on a combination of higher oil prices and AI-related concerns.
FX moves confirmed that the dollar is far from the preferred safe haven at this stage, with the yen and Swiss franc emerging as the main beneficiaries of the defensive rotation. Crucially, the negative correlation between bonds and equities is reasserting itself, and FX markets are taking their cues from that dynamic. 10yr Treasuries broke back below 5.0% for the first time in a month, showing ever-reduced sensitivity to higher oil prices. The same dynamic is visible at the front end, where the 2yr SOFR swap rate dropped 15bp to 4.50% yesterday.
That suggests equity jitters are enough to dent market conviction on a large Federal Reserve tightening cycle. Still, the bar for pricing out a December Fed hike appears fairly high, which should prevent larger USD corrections for the moment. Any stabilisation in risk sentiment can help USD consolidate across most pairs and take some shine off JPY and CHF.
But the FX reaction function to further risk sell-offs is now looking much clearer. On the data side, focus will be on S&P Global PMIs today. Consensus is for some softening in the US figures, which, however, remain deep into expansionary territory.
Francesco Pesole EUR: Sensitivity to France can return rapidly The OAT-Bund 10yr spread closed at 174bp after touching 178bp yesterday. That wasn’t the only EU sovereign spread widening yesterday; bunds outperformed (+9bp) on haven demand, and energy prices played a role too. But OATs saw the only increase in 10yr yields in Europe (+6bp), and the OAT-BTP spread has reached a grim 50bp milestone.
The budget/political situation is not visibly deteriorating, so the move is probably a function of OAT’s simply having a higher beta to global factors and perhaps some concerns about another weekend of social unrest in France. The euro’s sensitivity to France has clearly diminished, with the common currency not materially underperforming G10 peers yesterday. That link may, however, re-establish very rapidly should a new pain level – perhaps 200bp – be breached.
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