FX Daily: Warsh should keep the dollar supported
The desk anticipates that the dollar will remain well-supported, particularly in light of statements expected from Kevin Warsh at the ECB's Sintra conference. Per the full note source, Warsh's hawkish tone following last month's FOMC meeting has shaped market expectations, with anticipated Fed tightening priced into the curve. Given stronger economic signals, including a recent core PCE print of 3.4% YoY and a robust jobs report, the environment favors dollar strength as traders await further indications from Warsh about monetary policy direction.
What the desk is arguing
The desk believes that comments from Fed Chair Kevin Warsh today should reinforce the dollar's strength. Following a tightly controlled narrative from the Fed that emphasizes tight monetary conditions and price stability, market participants are primed for another hawkish stance amidst growing economic confidence.
Warsh's previous remarks at the last FOMC meeting catalyzed a dollar surge, setting a precedent for expectation management moving forward. Notably, the market is currently pricing in a significant 45 basis points of tightening by Q2 of next year, with 22 basis points anticipated as earlier as September. This context makes a potential pushback against current pricing seem unlikely, thus presenting upside risks to the dollar today.
Where it sits in our coverage
For EUR/USD, our consensus target sits at 1.1700 (range of 1.1200–1.2000), with specific targets from firms such as: - jpmorgan: Dec-26 target at 1.1800 - goldman: Dec-26 target at 1.2000 - ubs: Dec-26 target at 1.2000
In the case of USD/CAD, our current spot is 1.3800, with a median target of 1.3823 for Mar-26. The firms are aligned in their bullish outlook on the dollar, with scotiabank and bofa anticipating similar scenarios through mid-2026. Our desk's views slightly align with the higher targets in the market, indicating strong bullish sentiment around the dollar amidst tight monetary conditions.
How other firms see it
Market sentiment reflects a divided approach; firms like citi and tdsecurities project a bullish dollar with March 2026 targets reaching as high as 1.3940 for USD/CAD. Meanwhile, scotiabank shows some divergence in EUR/USD outlook with a target of 1.1200 for December 2026. This discrepancy suggests a broader market debate regarding the sustainability of dollar strength as other currencies struggle to keep pace.
The dollar's trajectory will be further influenced by forthcoming economic indicators and central bank communications, particularly in light of the hawkish tone reiterated by Warsh today.
How firms align with this view
Aligned with the desk view
Key takeaways
- 01Expect dollar support bolstered by hawkish guidance from Fed Chair Kevin Warsh at Sintra.
- 02Markets are pricing in significant tightening, with 22 basis points expected as early as September.
- 03Prevailing economic indicators, like PCE and employment numbers, support a sustained dollar bullish outlook.
- 04Cross-currency dynamics pose risks; divergence remains evident, specifically with dollar-euro interactions.
Market implications
Traders should keep a close eye on Warsh's remarks today for potential signals that could strengthen the dollar further, especially with the current positioning favoring USD across the board. Significant resistance levels in EUR/USD exist around 1.1700, while USD/CAD being at 1.3800 could indicate pivotal trading opportunities.
Risks to this view
A reversal in the dollar's trajectory could occur if Warsh indicates a more dovish approach than anticipated, or if upcoming economic data surprises to the downside. Market sentiment could quickly shift should inflation metrics underperform, leading to reevaluations of Fed tightening expectations.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Société Générale | Bearish | 1.1400 |
Scotiabank | Bearish | 1.1200 |
Commerzbank | Bullish | 1.2200 |
Articles FX Daily: Warsh should keep the dollar supported 07:41 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar remains well bid and holding onto the gains made since last month's FOMC meeting. Given the absence of forward guidance from the Fed now, there is going to be intense focus on any comments from the new Fed chair, Kevin Warsh. He speaks on a central bank panel today at the ECB's Sintra conference.
A focus on price stability can keep the dollar bid Chris Turner , Frantisek Taborsky and Francesco Pesole Fed Chair Kevin Warsh USD: Warsh's comments should be dollar supportive The last time Kevin Warsh spoke to financial markets , the dollar surged. This was at his debut FOMC meeting last month, where a dramatically shortened statement and a central commitment to price stability were read as hawkish by the markets. A hawkish set of Dot Plots clearly helped too.
The message coming from that press conference was that the Fed had missed its inflation target five years running and would not let that happen again. Kevin Warsh will speak in Sintra at 1500CET today, his first remarks since the FOMC meeting. Since then, he has seen another core PCE print at 3.4% YoY and another bumper jobs report.
Consumer confidence has surprised on the upside and, despite recent volatility, US equities remain closer to the upper end of recent ranges and are delivering near double-digit year-to-date returns. Given this backdrop, it is hard to see Warsh softening his hawkish tone. While financial markets already price a sizeable 45bp of Fed tightening by the second quarter of next year, there is still a risk that the tightening is expected earlier. 22bp of tightening is priced for the September meeting and 8bp is priced for the next meeting on 29 July.
A pushback against this market pricing would be a big surprise today and instead we suspect his comments present upside risks to the dollar today. Some in the market even think a July hike is possible. Before Warsh speaks, we will see the ADP employment report for July.
Any upside surprise above the +120k area could also prove dollar positive. And later in the day, US ISM manufacturing data should show an ongoing expansion. DXY has held support at 101.00 and could push back to the 101.70/80 area as the market reacts to rare communication from the new Fed chair.
Chris Turner EUR: ECB will try to hold the line at Sintra As our team have been discussing this week, we think it is too early for the ECB to abandon its tightening rhetoric – even though a second hike in September could be a policy mistake. The ECB script remains that last month's rate hike was not an insurance move, and it sounds like the ECB wants to talk tough to ride out this inflation hump and ensure that second-round effects do not emerge. That suggests market pricing of one ECB rate hike by early next year can stay in money market curves.
Sources & References
How we cover this story
Related news on this pair
Euro climbs as fading Fed hike expectations pressure US Dollar
Lower Fed terminal rate pricing narrows USD/EUR support; monitor PCE prints for conviction shifts in carry unwind risk.
EUR/USD price outlook: EUR/USD tests 0.618 Arc
EUR/USD reacts to data: Fed rate hike expectations fall
Lower Fed rate hike odds reduce carry support for USD and extend EUR/USD reprieve; monitor next inflation print for hike probability reset.