FX Daily: Dollar holds gains as geopolitics heats up
The desk's analysis underscores that the dollar's strength amid rising geopolitical tensions is likely to persist, driven by solid US economic growth and anticipated Fed tightening. Per the full note , the current market environment is characterized by cautious optimism ahead of the US September CPI release, with expectations tilted toward a 75bp rate hike. Our consensus outlook remains stable, anticipating a Euro at 1.1700 for December 2026, which is echoed by various institutional forecasts. With no significant events on the calendar, focus remains on the evolving geopolitical landscape and its influence on energy prices.
What the desk is arguing
The desk frames the dollar's ongoing strength as supported by persistent geopolitical tensions and positive economic indicators from the US. Per the full note , recent escalations in the region, including Houthi strikes and complex dynamics surrounding the Russia-Ukraine 'energy ceasefire', have contributed to a favorable backdrop for the dollar. Furthermore, the upcoming US inflation data is expected to reinforce market anticipations of further Fed rate hikes.
Current economic conditions feature an inflation consensus aligning around 0.2% month-on-month for core US CPI, which could present upside surprises according to analysts. This potential shift underscores the Federal Reserve's tightening trajectory and maintains the dollar's purchasing power advantage.
Where it sits in our coverage
Our consensus target for EUR/USD is currently set at 1.1700, with a range of 1.1200 to 1.2000 for December 2026. Notable forecasts include: - rabobank: Dec26 target of 1.1800 - socgen: Dec26 target of 1.1400 - cibc: Dec26 target of 1.2200
This outlook reflects a relatively aggressive positioning compared to other firms, notably placing at the upper end of the prevailing market spread. In particular, ing concurs on the 1.1700 Dec26 target, indicating a unified view of near-term strength for the dollar against the euro.
How other firms see it
Firms such as rabobank and nomura are aligned with our outlook, anticipating sustained dollar strength through tighter monetary policy. Conversely, citi with a more cautious stance sees lower targets, reflecting concerns over US economic resilience.
The trajectory of USD/EUR is closely tied to expectations around US inflation figures and Federal Reserve actions, which could prompt notable shifts in positions leading up to data releases, particularly as the September CPI approaches.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The dollar's position is reinforced by geopolitical tensions and strong US economic growth.
- 02US September CPI release is critical, with expectations centered on potential upside surprises.
- 03Institutional consensus maintains a bullish view on USD, particularly against the EUR.
- 04No significant events on the calendar allow for continued market focus on fundamental data.
Market implications
Pay close attention to resistance around the 1.1300 level for EUR/USD, with broader sentiment driven by the upcoming US CPI data on the 12th. Positioning around energy prices will also be critical as geopolitical developments unfold.
Risks to this view
A significant drop in energy prices or unexpected dovish signals from the Fed could alter the current bullish narrative around the dollar. Additionally, any de-escalation in geopolitical tensions might push traders to reassess their bullish positions on USD.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Articles FX Daily: Dollar holds gains as geopolitics heats up Published 07:45 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download News over the weekend of continued Houthi strikes in Riyadh and a supposed 'energy ceasefire' between Russia and Ukraine have had little meaningful impact on FX markets so far. The dollar remains well bid, and what could be a hot US September CPI this week will keep expectations of Fed tightening and a stronger dollar in play Chris Turner , Frantisek Taborsky and Francesco Pesole The dollar remains supported amid rising geopolitical tension USD: Geopolitics to keep the dollar supported FX markets have been reasonably quiet at the start of the new week, barring a jump in the Indian rupee on some defensive measures instituted by the Reserve Bank of India. Energy prices do not quite know what to make of weekend developments, where Houthi strikes against Saudi Arabia have escalated local tensions, while at the same time US President Donald Trump has tried to present an 'energy ceasefire' between Russia and Ukraine.
On the latter, Russia has yet to respond to the invite and continues to target energy infrastructure in Ukraine. Instead, FX markets are preferring to concentrate on the cyclical story of decent US growth, above-target inflation and the prospect of the Federal Reserve hiking 75bp from current levels. Barring a big fall in energy prices this week, which seems unlikely, Wednesday's release of September US CPI inflation looks set to keep those Fed tightening expectations broadly intact.
Our team see upside risks to the consensus of 0.2% month-on-month on the core reading. And as James Smith discusses in his weekly column , it may not be until next spring when tightening expectations can drop out of money markets. This points to the dollar staying supported by the cyclical story for a good while yet.
Other highlights this week include a new World Economic Outlook from the IMF and the US 3Q earnings season kicking off tomorrow when bulge bracket banks release. With US bond markets closed for the Columbus Day public holiday, it should be a quiet day for FX markets. But DXY consolidation above 102 looks bullish, and our preference would be for a push up to 102.85 this week.
Chris Turner EUR: Little reprieve for the euro EUR/USD is consolidating near 1.12, and support remains fragile. French debt spreads remain near their widest, with Marine Le Pen's counter-budget proposal last week raising more questions than it answered. In theory, the French government's budget proposal of €43bn in new savings will be debated in parliament this week.
Consensus seems to expect that this will make little progress, but that the government might ultimately be able to pass this budget by decree. Here, protagonists in parliament might avoid trying to bring down the government, which would make the French debt crisis worse than it already is. This is hardly a euro positive, however.
Sources & References
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