FX Daily: Hawkish Fed minutes keep dollar supported
The desk maintains a bullish outlook on the dollar following the hawkish September FOMC minutes, which indicate a near-term policy rate hike is anticipated by year-end. The expectation of further tightening in response to persistent inflationary pressures, alongside robust Treasury demand, underpins this stance. Per the full note, elevated U.S. Treasury yields are likely to keep the dollar supported, despite recent volatility. This backdrop contrasts with fragile sentiment in European markets, particularly in the EUR/USD and EUR/GBP pairs.
What the desk is arguing
The dollar retains upward momentum driven by the indication from the September FOMC minutes that the Federal Reserve sees another rate hike by year-end as likely. The Fed's focus on inflation and its surprise at the AI-related investment boom suggest policymakers are committed to tightening further as needed. Per the full note, 'most participants' agreed that further hikes may be warranted, which propels expectations for U.S. monetary policy tightening.
Strong demand in the recent U.S. Treasury auction demonstrates lasting interest in Treasuries, suggesting that market participants remain engaged despite rising yields. This invites further dollar strength and creates headwinds for currencies like the euro and pound. The source highlights that financial markets are currently pricing in a 25bps hike in December, followed by an aggressive additional 50bps next year. While our desk argues that this may be too optimistic, we see the dollar remaining well-supported in the interim.
The alternative read would involve a sudden shift in inflationary trends or a dovish pivot from the Fed, both of which currently seem unlikely given the data flow and FOMC's recent communications.
Where it sits in our coverage
For the EUR/USD pair, our median forecast sits at 1.1634 for December 2026, with a range of 1.1200 to 1.2000. Notable firms include: - rabobank: Dec26 1.1800 - bofa: Dec26 1.1500 - rbc: Dec26 1.2000
Our view aligns with the wider consensus, specifically towards the upper end of the current range, favoring the more aggressive tightening narrative against European counterparts.
How other firms see it
Several aligned firms, including socgen and bofa, share a bullish dollar view, reinforcing the perception of U.S. monetary policy divergence from the Eurozone. Conversely, firms like mizuho and citi appear less bullish, reflecting a more tempered outlook for currency pair performances in this environment. Given the current macroeconomic backdrop, watch for developments related to the BoE rate path, which could also influence how GBP/USD moves in tandem with broader dollar strength.
How firms align with this view
Key takeaways
- 01The dollar is supported by hawkish FOMC minutes indicating further tightening is likely this year.
- 02Current Treasury yield increases sustain investor interest in dollar-denominated assets.
- 03EUR/USD remains fragile amid political uncertainty in Europe, especially in France.
- 04Market pricing for a 25bps Fed hike in December could still allow for dollar strength in the near term.
Market implications
Watch for EUR/USD to remain under pressure, particularly if the market continues to price in Fed rate hikes. With the current spot at 1.1253, a drop towards 1.1200 could see sentiment shift dramatically. Additionally, positioning in USD/JPY is critical as it reflects broader dollar dynamics.
Risks to this view
Any dovish signals from the Fed that suggest a pause in rate hikes, especially in light of upcoming inflation prints, could undermine this bullish dollar narrative. Likewise, better-than-expected economic data from Europe may strengthen the euro and shift market sentiment.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bullish | 1.1500 |
Rabobank | Bullish | 1.1800 |
Citi | Bearish | 1.0850 |
Articles FX Daily: Hawkish Fed minutes keep dollar supported Published 07:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar remains supported as September FOMC minutes showed a Fed firmly expecting to hike the policy rate again later in the year. French debt markets are still unsettled and EUR/USD remains fragile. Expect more focus on political events in Paris today and also on Bank of England speakers, where centrists could turn more hawkish Hawkish FOMC minutes provide underlying support for the dollar USD: Clean, hawkish read from the FOMC minutes September FOMC minutes published last night reflect a hawkish Fed.
One sentence which caught our eye was: "Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year-end." This followed a discussion of frustratingly high inflation and the Fed being surprised about the pace and magnitude of the AI build-out. Notably, most references to the AI investment boom were associated with an inflationary impulse. But a hawkish Fed is firmly priced by money markets at this stage.
After an expected 25bp hike to 4.25% in December, the market still looks for another 50bp of tightening next year. We think that is too aggressive, but doubt the market will want to fight against that hawkish pricing this year. This leaves the dollar well-supported and winning more friends in a slightly more difficult investment environment.
Here, elevated Treasury yields and rising volatility have sucked money out of the carry trade, where most Latam currencies have been hit quite hard. Given events in Europe, we're looking for the dollar to hold onto gains over the coming months. Additionally, the US 10-year Treasury auction went very well last night, with a strong bid-to-cover ratio and a strong indirect bid, serving as a reminder that demand for Treasuries does exist if yields are high enough.
For today, there is little data of note, but we'll be on the lookout for a speech from the Fed's Chris Waller at 1030CET. He is seen as a centrist, but presumably will stick to the new script about the need for further Fed tightening. DXY can grind up towards a target at 102.85.
Chris Turner EUR: Febrile environment for French debt Having enjoyed a modest rebound earlier in the week, French sovereign debt was hit by a report yesterday that the French Treasury could shorten the duration of its issuance to protect the long end. While that seems rational, investors did not like the fact that this could alleviate pressure on politicians to act. We are hence left with Marine Le Pen's questionable plans for fiscal consolidation next year and the current government's proposal for some modest fiscal consolidation .
Sources & References
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