FX Daily: Don’t mess with the dollar near term
The dollar is positioned for continued strength in the near term, bolstered by robust U.S. inflation statistics and a potentially aggressive response from the Federal Reserve. Per the full note from ING, the recent uptick in short-dated U.S. yields, climbing about 40 basis points since Tuesday, signals a shift in market sentiment towards the likelihood of back-to-back rate hikes in December and January. Currently, this momentum is reflected in a hawkish outlook that is unlikely to reverse without significant market disruption, such as a major sell-off in U.S. tech stocks or a drastic change in Fed narratives. In light of these dynamics, predictions for the dollar against key pairs like the euro, Swiss franc, and yen are gaining traction among traders.
What the desk is arguing
The desk maintains that market conditions favor continued dollar strength in the immediate future. The latest developments in inflation and U.S. central bank expectations significantly support this view, as articulated in the ING commentary.
The statistical evidence is compelling: short-dated U.S. Treasury yields have spiked nearly 40 basis points this week alone, driven by heightened expectations for a 50 basis point rate hike in December as hinted by Fed officials. This shift points to an anticipated 85 basis points of tightening, suggesting a more aggressive Fed stance than previously expected.
Where it sits in our coverage
For the EUR/USD, our internal consensus target is 1.1400, with a range from 1.1000 to 1.2000; notable targets include investec at 1.1700 and rbc at 1.2000 for Dec-26. This aligns with the desk’s view, suggesting that the dollar may maintain upward pressure on both the euro and other currency pairs.
How other firms see it
A consensus among multiple firms supports the idea of continued dollar strength, notably with nomura and bofa projecting targets of 1.2000 and 1.1500 for Dec-26 respectively. Conversely, firms like hsbc and mizuho suggest a bearish outlook on the USD, with lower targets on major pairs like EUR/USD and USD/JPY.
The correlation between the Fed's monetary policy and the performance of the USD/JPY and USD/CHF underscores the volatility expected in these pairs—watch USD/CHF for significant resistance near 0.8400, alongside USD/JPY which has breached the psychological level of 160.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Strong U.S. inflation supports dollar bullishness.
- 02Market now expects aggressive Fed rate hikes in December.
- 03Short-dated U.S. yields are significantly higher since the week's start.
- 04Resistance level for USD/CHF at 0.8400 is pivotal.
Market implications
Traders should monitor the USD/CHF resistance level of 0.8400 and the psychological threshold of 160 for USD/JPY as key indicators of dollar strength. Potential shifts in Fed communications or economic surprises could shift this dynamic rapidly.
Risks to this view
The primary risk to this bullish dollar thesis would be if the Fed adopts a more dovish tone or if a major correction in U.S. equity markets occurs, especially in the tech sector—both could pressure yields downward and subsequently weaken the dollar.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Neutral | 1.1200 |
UniCredit | Bullish | 1.1600 |
UOB | Bearish | 1.1140 |
Articles FX Daily: Don’t mess with the dollar near term Published 07:56 FX Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Hot US inflation and the prospect of a more aggressive response from the Fed are the themes dominating FX markets currently. Another dose of firm US PPI today and some more hawkish Fed rhetoric are set to keep the dollar very supported into next week Chris Turner , Frantisek Taborsky and Francesco Pesole October US PPI data today should keep short-dated yields and the dollar bid Please see ING's FX Outlook 2027: Fat tails, slim ranges for insights into key themes next year. USD: Do not stand in the way of the dollar This week has seen a powerful, macro-driven rally in the dollar.
Short-dated US yields are close to 40bp higher since Tuesday morning, when the Federal Reserve's Christopher Waller mused over the need for a 50bp hike in December. The market has since adopted the view that back-to-back December and January hikes look likely, while extending the full Fed adjustment from here to a full 85bp of tightening. That's beginning to look a lot more like a cycle than the kind of modest adjustment we recently presented in our house baseline view .
Notably, a few Fed members are starting to describe conditions more as a demand than a supply shock. It is hard to see what is going to change this hawkish Fed/dollar-positive mindset in the next few weeks. The Fed centrists might try to emphasise the need for a gradual adjustment in policy, but it is probably only a big US tech sell-off that can put a dent in short-dated US yields now.
In terms of the FX reaction, the low-yielding Swiss franc and the yen have some of the highest correlations with US rates and are under pressure. 0.8400 is a really important resistance area for USD/CHF and will probably help determine whether the dollar needs to take another big leg higher over the coming weeks. USD/JPY is already trading through the psychological level at 160, and we would not expect any intervention yet given the macro nature of the broadly stronger dollar. As we said on Wednesday , we expect to see dollar strength more expressed against activity currencies, where something like the low-yielding Swedish krona looks vulnerable.
For today, the October US PPI looks likely to keep the narrative of hot US inflation alive. Expect scrutiny into the components of PPI, such as healthcare, airfares and software, that feed into the Fed's preferred PCE inflation data – the next release of which is on 25 November. Were that core PCE to rise 0.3% month-on-month for the third month in a row, expectations of a 50bp December hike would grow.
DXY has broken to a new high for the year and looks like it can push on to the next resistance level at 104.60. That's about a 1.5% advance from current levels and would be consistent with EUR/USD trading around 1.0880. Chris Turner EUR: ECB struggles to outhawk the Fed European Central Bank rhetoric firmly points to the need for a rate hike in December.
Sources & References
How we cover this story
Related news on this pair
EUR/USD remains depressed amid mixed Eurozone data and a hawkish Fed
Rising UST yields and hawkish Fed expectations are driving USD strength while Eurozone data deterioration leaves EUR without countervailing support.
EUR/USD: Political risks tilt against Euro – Commerzbank
US political gridlock reduces dollar-weakness risk from unilateral easing, while French election uncertainty and eurozone debt concerns create EUR/USD headwinds.
Euro sees fresh downside below 1.1050 against US Dollar, US PPI in focus
EUR/USD breaking below 1.1050 support with US PPI data looming signals potential for fresh downside if inflation print exceeds expectations.