FX Daily: Lower energy helps Bessent’s plans
The desk posits that the recent decline in energy prices is positively influencing risk assets and subsequently contributing to a softer dollar, particularly ahead of crucial economic data releases. Per the full note, U.S. Treasury Secretary Scott Bessent's intervention last week, which followed a notable 10-15 basis points drop in longer-dated Treasury yields, suggests he may possess actionable insights that aren't yet fully baked into the market. This dynamic is particularly relevant as we await the U.S. PCE inflation data today, which could further inform the dollar's trajectory amidst a generally stable risk environment.
What the desk is arguing
The desk frames this as a clear relationship where lower energy prices are bolstering both risk sentiment and the outlook for the dollar. As indicated in the source commentary, an 8% decline in oil prices since last week has supported a more positive risk environment, aiding Bessent's objectives in the Treasury market.
The actions by Bessent align with a notable market response, as evidenced by the subsequent decline in long-end yields. The upcoming U.S. PCE inflation data release is expected to show a benign print of around 0.2% month-on-month, which could stabilize the dollar and extend the recent easing in financial volatility.
Where it sits in our coverage
For the EUR/USD, our consensus stands at 1.1700 with a range from 1.1200 to 1.2000, while firms like ubs and stanchart project March 2026 targets of 1.2000 and 1.1400, respectively. Similarly, for GBP/USD, our current spot is at 1.3300, aligning with a median target of 1.3400 — with firms like morganstanley forecasting a higher target of 1.3800 for the same period.
This perspective generally falls within the central range of expectations, with our view on EUR/USD sitting in the upper end of the current consensus spread, suggesting a cautiously optimistic outlook supported by macroeconomic factors.
How other firms see it
Aligned to our view are firms like ing and ubs, which express a bullish outlook on both EUR/USD and GBP/USD. In contrast, nomura and citi expect a more tempered performance, projecting lower targets for both pairs, reinforcing a divergence in sentiment around the stabilization of the dollar.
These dynamics are closely tied to current movements in USD/JPY and reflect broader trends influenced by the Bank of Japan's policies, particularly regarding interest rates and inflation expectations.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Lower energy prices positively affect risk assets and the dollar.
- 02Bessent's intervention has contributed to a decline in long-end Treasury yields.
- 03Upcoming U.S. PCE data could reinforce risk sentiment affecting the dollar.
- 04Market volatility is decreasing alongside lower yields, favoring carry trades.
Market implications
Watch for the U.S. PCE inflation release today as a potential catalyst for further shifts in dollar strength. A print at or below 0.2% month-over-month could stabilize the dollar near current levels, particularly in the context of ongoing geopolitical concerns.
Risks to this view
A stronger-than-anticipated inflation print could reverse the current outlook, causing a re-evaluation of dollar positions. Additionally, any signs of escalation in geopolitical tensions, especially in the Middle East, could unseat the recent softening dollar trend.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1800 |
ING | Neutral | 1.1700 |
Rabobank | Bullish | 1.1800 |
Articles FX Daily: Lower energy helps Bessent’s plans Published 07:45 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Whether lower energy prices were part of Scott Bessent's 'asymmetric information' included in his plans to support long-end Treasuries remains to be seen. But the welcome drop is good news for risk assets and feeds a benign decline in the dollar. Look out for US PCE inflation data today, as well as Nvidia's Q2 earnings release after the close Chris Turner , Francesco Pesole and Frantisek Taborsky US Treasury Secretary Scott Bessent USD: Softer energy helps risk A week after US Treasury Secretary Scott Bessent's intervention in the US Treasury market, longer-dated yields are some 10-15bp lower.
In defending that intervention last week, Bessent claimed that, as Treasury Secretary, he has 'asymmetric information'– i.e. more information than the market. Whether such information includes the path to de-escalation talks in the Middle East remains to be seen, but it is clear that an 8% swing lower in oil prices since last week has helped. Here, Pakistani-brokered peace talks seem to be grabbing the market's attention.
The next test for the long-end comes from today's release of US PCE inflation data, tomorrow's $44bn 7-year note auction and then Friday's Jackson Hole speech from Fed Chair Kevin Warsh. Please see the views of the ING Rates Strategy team here . Lower yields have seen interest volatility dip again and feed into lower volatility in FX and equities.
Carry remains king and, overnight, one of the popular carry trade targets in the G10 space – the Australian dollar – got a boost when July CPI surprised on the upside. This has increased the chances of a Reserve Bank of Australia rate hike in November. Back to the dollar.
A benign US core PCE print at 0.2% month-on-month should keep the dollar relatively steady today, though the benign risk environment could see some mild dollar losses. 99.00/10 may well cap the topside for DXY and we favour a drift back to the recent lows at 98.60. Chris Turner EUR: Schnabel sounds upbeat Eurozone data releases continue to surprise to the upside. And what is the big surprise is how resilient the eurozone economy has been in the face of this year's rise in energy prices.
In fact, the ECB's Isabel Schnabel has today suggested that at September's meeting, the ECB might have to characterise growth risks to the upside. These comments should cement expectations for a 25bp rate hike to 2.50% at the September meeting and can probably retain market pricing of another 25bp hike into early next year. As a procyclical currency, better growth prospects are obviously good news for the euro and barring any upside surprises with the US core PCE data today, we favour EUR/USD holding support at 1.1650/60 and heading back to the 1.1700/1710 area.
Sources & References
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