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 |
|---|---|---|
Citi | — | 1.1200 |
UOB | — | 1.1445 |
Investec | — | 1.1700 |
All 28 desk targets for EUR/USD
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.
Eurozone data today will be the flash release of June CPI data, where headline and core are both expected to soften slightly. EUR/USD could make a break back to the 1.1325 lows on Warsh today. Chris Turner CAD: USMCA review poses risks In theory, the review of the USMCA trade agreement – the agreement that replaced NAFTA – is due today.
Most expect this will be delayed as the US, Canada and Mexico haggle over how to adjust the terms. It seems the US wants to strengthen some of the rules of origin language. Clearly, any trade renegotiation activity proves a threat to Canada and Mexico.
We see downside risks to the Canadian dollar here, also suffering from the strong dollar and a dovish Bank of Canada wanting to look through the inflation spike. Expect USD/CAD to hold above 1.42, with outside risks to 1.45 this month if USMCA discussions go wrong or the dollar overshoots. Chris Turner CEE: Lower inflation in Poland increases pressure on zloty Yesterday's June inflation in Poland brought another surprise to the downside, with a decrease from 3.1% to 2.5%, exactly the target of the National Bank of Poland.
Although food prices were the main surprise to the downside in May, in June we saw a decrease across the entire basket, but food again remains the main factor. Core inflation is unlikely to have changed much, with our estimate between 3.0-3.1%. The market has priced out all rate hikes and now dovish numbers support pricing rate cuts with around 10bp priced in the longer term.
We still expect some deterioration in inflation towards the end of the year, which should leave the National Bank of Poland policy rate unchanged for a longer period. But in the meantime, we can see pressure on lower market rates which should further undermine the zloty's strength. EUR/PLN tested 4.300 as we expected, but for now this level remains strong resistance.
If the NBP indicates openness to a rate cut next week, it could be a signal for EUR/PLN to continue higher. Elsewhere in the region today we will see PMIs across the board, which have remained resilient since the start of the US-Iran conflict. Global relief could bring some improvement today.
In the Czech Republic, mid-year budget figures will be published, which so far indicate an on-track execution this year, and in the middle of the month, MinFin is expected to publish a mid-year update on its funding strategy. Czech government bonds should see significantly lower supply than initially expected due to surprisingly strong demand for retail bonds. Frantisek Taborsky Dollar CEE FX CAD 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: Warsh's comments should be dollar supportive EUR: ECB will try to hold the line at Sintra CAD: USMCA review poses risks CEE: Lower inflation in Poland increases pressure on zloty
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