FX Daily: October Fed hike remains very data dependent
The desk frames the recent soft US data as supportive of a cautious Fed, which, alongside elevated long-term yields, continues to underpin dollar strength. Per the full note, pricing for an October Fed hike has dipped to below 50% following disappointing consumer sentiment and job openings data, showcasing a growing data dependency in markets. The anticipation of today's releases of PCE inflation and ADP payrolls reinforces this notion, as both could influence short-term rate expectations. As the dollar remains bid—ringing in despite softer economic indicators—the stakes for the upcoming data releases have never been higher.
What the desk is arguing
The desk argues that the recent drop in Fed hike expectations underlines the importance of forthcoming data, specifically the PCE and ADP releases. Given that pricing for an October rate increase has fallen to just 12bp, it highlights the market's sensitivity to economic signals. Per the full note, both the decline in consumer confidence and job openings have raised questions about the robustness of the labor market, further challenging previous assumptions about Fed policy.
Moreover, the dollar's continued strength, even amidst discouraging data, indicates a complex interplay between market sentiment and yield dynamics. The broad risk sentiment remains pressured, particularly for high-beta currencies, while the dollar remains resilient due to the ongoing discourse around long-term bond yields.
Where it sits in our coverage
Our consensus target for EUR/USD stands at 1.1700, with a range stretching from 1.1200 to 1.2000. Firms such as socgen (Dec-26 target of 1.1400) and barclays (1.2100) present a mix of outlooks within this spectrum.
The desk's positioning aligns closely with the consensus view, firmly placed towards the median target, given that the current spot at 1.1446 hovers around the lower bounds suggested by other firms as well.
How other firms see it
Consensus among firms has been largely supportive of a bullish outlook on EUR/USD, particularly from those like nomura and hsbc who see targets around 1.1700 and 1.1000 respectively over the next few quarters. Conversely, firms such as danskebank suggest a more bearish scenario with targets as low as 1.1100, which diverges from more optimistic projections.
Moreover, the movements in CAD and JPY also merit attention, as ongoing BoC and BoJ policies might influence the dollar's behavior in the broader FX landscape.
What the calendar says
With crucial releases like ADP figures and PCE inflation on the docket today, the market's pulse on rate expectations could meaningfully shift depending on the outcomes. Traders should closely monitor these data points as they could dictate dollar performance in the near term.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Fed expectations for an October hike have dropped below 50% after weak US economic data.
- 02The dollar continues to strengthen despite soft indicators, reflecting ongoing sensitivity to yield dynamics.
- 03Upcoming PCE and ADP releases are pivotal for shaping market sentiment and rate expectations.
- 04Current EUR/USD spot at 1.1446 remains below the consensus median of 1.1700.
Market implications
Watch for EUR/USD to remain influenced by the outcomes of today’s PCE and ADP reports. The 1.15 handle might serve as a key psychological level for traders given its proximity to consensus expectations.
Risks to this view
Should today's data print stronger than anticipated, it could alter the market's perception of Fed hawkishness, leading to a potential dollar correction. Additionally, any significant changes in long-term Treasury yields would pose a risk to the current dollar trajectory.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Bullish | 1.1800 |
Danske Bank | Bearish | 1.1100 |
UBS | Bullish | 1.1800 |
Articles FX Daily: October Fed hike remains very data dependent Published 07:25 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Pricing for an October Fed hike dropped to just below 50% after soft US consumer sentiment and JOLTS yesterday. Expect more front-end rate action today with PCE and ADP releases. However, the slump in long-dated bonds will keep heavily affecting FX.
For now, it argues against any material dollar correction Frantisek Taborsky , Francesco Pesole and Chris Turner The dollar jumped higher again yesterday despite soft US data USD: Dollar strengthens despite soft data The dollar jumped higher again yesterday. Rising back-end yields continue to weigh on global risk sentiment, with low-liquidity, higher-beta currencies bearing most of the brunt. The yen remains the sole exception to the broader dollar strength trend.
Beyond the lingering threat of FX intervention, the unwinding of JPY-funded carry trades may also be providing support. The Swiss franc and Swedish krona have likely picked up some of that funding flow. After last Thursday's dovish SNB and hawkish Riksbank decisions, the CHF appears to face the greater downside risk.
At the same time, the dollar received some negative news yesterday. US consumer confidence fell sharply to 81.9 in September, well below expectations, and JOLTS job openings declined to 7,079k in August, also undershooting consensus. The latter reinforces our view that the August payroll print may have been overstated and could be revised lower on Friday.
The impact was visible in front-end rates, which moved lower alongside a modest decline in oil prices. October FOMC pricing fell 5bp to 12bp, its lowest level in around two weeks. That underlines just how data-dependent markets see the October hike decision.
Expect more front-end action today with the release of September ADP payrolls and August personal spending and PCE inflation. Core PCE is expected to rise from 0.2% to 0.3% MoM, in line with our forecast. While this is the Fed's preferred inflation measure, markets are likely to place greater weight on the September CPI release in a couple of weeks.
Even so, a 0.4% MoM core PCE print could lift the October hike pricing again close to 20bp if supported by jobs figures too. Some stabilisation in risk sentiment could take some shine off the dollar rally, but today's data will have a big say. With room for markets to reprice a higher probability of an October Fed hike, it may be premature to call the top in this dollar move.
Francesco Pesole EUR: Testing new lows EUR/USD finally fell below the summer lows yesterday. Spot dropped temporarily to 1.1310-20 before paring some losses, trading at 1.1350 this morning. We flagged yesterday how dovish-leaning remarks by Christine Lagarde were leaving the euro in a more vulnerable position, but this drop in EUR/USD appears entirely dollar-driven.
Sources & References
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