FX Daily: More insights into the Fed this week
The dollar remains resilient in the wake of the soft June jobs report, buoyed by expectations of hawkish Federal Reserve signals in the upcoming FOMC minutes. As discussed in the full note source, the market anticipates these minutes will underline the Fed's commitment to restoring price stability, potentially driving the dollar higher against major currencies. Current positioning reflected by G10 deposit rates suggests a preference for dollar carry trades in a relatively quiet FX market. Consensus estimates for the Fed's tightening trajectory have shifted slightly downwards, but the outlook remains broadly positive for the dollar, particularly against the yen and euro.
What the desk is arguing
The desk posits that the dollar is likely to remain supported this week despite a softer jobs report, primarily due to expectations surrounding an upcoming hawkish narrative from the Fed. Per the full note source, market participants are looking towards the FOMC minutes set for Wednesday, which may clarify the Fed's tightening stance amidst ongoing concerns about inflation.
Supporting this view is the fact that short-dated US interest rates have stayed elevated since April, with money markets pricing in 31 basis points of tightening this year. This is a notable adjustment from the peak of 43 basis points observed previously, reinforcing the dollar's current strength and signaling a cautious market attitude towards short positions.
Where it sits in our coverage
For the EUR/USD pair, the current spot is at 1.1434, with a consensus target of 1.2000 by December 2026 and a range from various firms indicating targets from 1.1200 to 1.2000. Notable firm targets include: - citi: Mar26 1.1300 - goldman: Mar26 1.1800 - hsbc: Mar26 1.1700
Our desk's view aligns with the broader market sentiment, as most firms are positioning for a stronger dollar as we approach the Fed's announcement, and it sits at the midpoint of current targets without falling to the lower range of bearish sentiment.
How other firms see it
Overall, firms like citi and scotiabank support the idea of a strong dollar trajectory, anticipating a shift driven by hawkish Federal Reserve rhetoric. Conversely, firms such as uob are more cautious, projecting a weaker dollar against the euro and yen, reflecting different views on carry trade viability.
The movements of USD/JPY will be particularly important to monitor, especially with intervention risks heightened in the context of aggressive Fed policies. Likewise, the EUR/USD trajectory could be influenced significantly by the ECB’s responses to these developments.
How firms align with this view
Key takeaways
- 01The dollar's resilience persists despite a soft jobs report, supported by expectations of hawkish Fed minutes.
- 02Market pricing for Fed tightening has eased slightly but remains supportive of dollar strength.
- 03Positioning favors carry trades as G10 FX volatility stays low, indicating investor confidence in the dollar.
- 04USD/JPY remains a key pair to watch given intervention fears amid rising rates.
Market implications
Watch for USD/JPY to test resistance levels as intervention fears loom, especially if the FOMC minutes signal a more aggressive tightening cycle. A continued focus on the dollar against euro and yen could lead to increased volatility in those pairs.
Risks to this view
Should the FOMC minutes reveal a more dovish outlook or if subsequent US economic data suggests a slowing recovery, the dollar could face significant downward pressure. Any unexpected monetary policy shift from the Federal Reserve or a pronounced intervention from Japanese authorities could also invalidate the current bullish stance.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | — | 1.1445 |
Citi | — | 1.1000 |
MUFG | — | 1.2000 |
All 28 desk targets for EUR/USD
Articles FX Daily: More insights into the Fed this week 07:42 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Thursday's release of a softish June jobs report hasn't done too much damage to the dollar. And it should remain relatively supported this week, given what should be a hawkish set of FOMC minutes on Wednesday and a dearth of market-moving US data this week. USD/JPY can continue to grind higher too, keeping intervention fears elevated Chris Turner , Frantisek Taborsky and Francesco Pesole A hawkish set of FOMC minutes on Wednesday – the first to be released under Kevin Warsh's leadership – could keep the dollar supported this week USD: Upside risks remain US markets are reopening after a long weekend, and FX markets are relatively quiet.
G7 FX volatility is close to the lower end of long-term ranges and will be encouraging more interest in carry trades as we head into the heart of summer. Here, one-week dollar deposit rates are in the top half of the G10 table and are a reminder that short dollar positions need to be backed up by a strong story, which is simply not there at the moment. Additionally, last week's soft US jobs data release has not done too much damage to the dollar, where short-dated US rates have largely held onto their increase from April.
Money markets are now pricing 31bp of Federal Reserve tightening this year versus the peak hawkishness seen late last month of 43bp of tightening. On the subject of the Fed, this Wednesday will see the first set of FOMC minutes released under Chair Kevin Warsh's leadership. Like the new-look FOMC statement, these could be sharply slimmed down.
However, the core message should be a hawkish one, where the Fed is committed to restoring price stability after missing its target five years in a row, and some (or many) members could see the Fed's next move as a rate hike. At the same time, the dollar seems to have dodged the bullet of large-scale Japanese FX intervention. USD/JPY is already back at 162 after a no-show from the Bank of Japan in holiday-thinned conditions last week.
This could be a reminder that Tokyo wants to use its finite FX reserves cautiously. The next window for intervention could be 16-17 July – ahead of the next public holiday in Japan. For today, the focus will be on the US June ISM services numbers, where activity should remain consistent with 2% US growth , but the prices paid component should come off its four-year high.
DXY support at 100.60 should hold today, with a bias for an upwards drift. Chris Turner EUR: Plenty of ECB speakers this week EUR/USD is consolidating above 1.1400 as the market considers the next move for central bank policy expectations and keeps one eye on geopolitics and equity market sentiment. A September rate hike from the European Central Bank is now priced with less than a 50% probability, but it is too early for the ECB to sound the 'all-clear' on inflation, given the risk that core inflation could still edge higher over the coming months.
Expect that message to come through from ECB speakers this week, including heavy hitters such as Isabel Schnabel and Philip Lane. As above, we can see the dollar edging a little higher this week on the Fed story and would assume that EUR/USD resistance at 1.1475 now limits the topside. We have a bias that EUR/USD can stay offered in the 1.13/14 area until it becomes much clearer that the Fed does need to hike rates after all.
That is the house view, but it may not become clearer until the end of the quarter. Chris Turner GBP: Focus on the next chancellor EUR/GBP delivered a sizeable downside breakout last week, which should be respected. Helping that move were stale sterling shorts and a view that if volatility was falling this summer, there was no point in paying away 2% per annum in carry by being short sterling if FX pairs were going to remain relatively static.
It is hard to see that mindset being challenged this week. However, later this month UK politics will return to the market, where Makerfield MP Andy Burnham could become Prime Minister on 20 July and announce his new chancellor shortly thereafter. The favourite for the post of chancellor is Energy Secretary Ed Miliband, who stands further to the left and is being pushed by the party to avoid the incrementalism witnessed during the Starmer/Reeves years.
The problem remains, however, that there is very little fiscal room for adjustment without raising taxes. This, along with our call that the Bank of England does not raise rates this year, could see sterling hand back some of its recent gains. Let's see if EUR/GBP support at 0.8545 can hold before politics returns to play a role in markets later this month.
Chris Turner CEE: Dovish local signals to test FX gains Weaker US labour data and a softer dollar gave CEE currencies some breathing room last week, shifting this week’s focus back to local drivers. June inflation figures for Hungary and the Czech Republic are due tomorrow. After the downside surprise in Polish inflation last week and the sharp fall in fuel prices, markets are positioned for soft prints.
In Hungary, we expect headline inflation to edge up from 1.8% to 1.9%, below the National Bank of Hungary’s 2.0% forecast. In the Czech Republic, inflation should fall further from 2.1% to 1.9%, below the Czech National Bank’s 2.1% projection. Both readings should send a dovish signal to markets.
A similar message is likely from the National Bank of Poland, which is expected to leave rates unchanged at 3.75% on Wednesday and publish a new forecast. While the projection should show higher inflation than in March, when the impact of the US-Iran conflict was not included, the press conference is likely to sound dovish after two consecutive downside inflation surprises. The week will also bring several industrial production and retail sales releases across the region.
A softer dollar supported a rally in CEE FX last week, and positive sentiment should carry into this week. However, lower inflation prints in Hungary and the Czech Republic, together with a dovish tone in Poland, could weigh on local FX. Following the drop in oil prices, markets may question the rate hike priced into the Czech market, while the zloty and the forint continue to price cuts.
In the short term, CEE FX may face some pressure, but the medium-term bias remains unchanged: bullish CZK and HUF, bearish PLN. Frantisek Taborsky Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Chris Turner Global Head of Markets and Regional Head of Research for UK & CEE Chris is Global Head of Markets and Regional Head of Research for UK & CEE. Together with his team, he provides short and medium-term FX recommendations for ING's corporate and… Frantisek Taborsky EMEA FX & FI Strategist Frantisek is an FX & FI Strategist covering EMEA markets, having joined the bank in 2022. He provides short- and medium-term recommendations for ING's corporate and institutional client… Francesco Pesole FX Strategist Francesco is an FX Strategist and has been with the firm since May 2019.
His main focus is on the G10 space and, in particular, on European and commodity currencies. He began his career at Credit… In this article USD: Upside risks remain EUR: Plenty of ECB speakers this week GBP: Focus on the next chancellor CEE: Dovish local signals to test FX gains
Sources & References
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