G10 FX Talking: Dollar upside looks limited
The desk argues that the upside potential for the US dollar appears constrained, aligning with ING's view that the Federal Reserve is unlikely to raise rates until 2027. This conclusion is based on the perceived stability of rates and theFed's commitment to price stability despite recent inflation spikes, diminishing the dollar's bullish momentum. The consensus on pairs like EUR/USD suggests a potential escalation, with estimates now favoring a return to 1.17 as unchanged Fed policy dominates the narrative. Per the full note source, the dollar's recent strengths have largely been driven by limited guidance from the Fed, amplifying the weight of forthcoming US economic data in traders' evaluations.
What the desk is arguing
The desk asserts that the dollar's room for growth is limited, primarily due to the anticipated inaction from the Federal Reserve regarding interest rates until at least 2027. Per ING's insights, the market may take until September 2026 to fully adjust its expectations, prolonging a period of uncertainty.
Recent economic data suggests that the current trajectory may not warrant any hike from the Fed this year. With rates likely holding steady, a bullish return toward EUR/USD levels of 1.17 becomes plausible as hedge costs for dollar exposures are expected to decline, particularly with a projected ECB hike in September.
Where it sits in our coverage
For the EUR/USD pair, the current spot trades around 1.1550, with a consensus target set at 1.1700 (range 1.1200–1.2000). Notably, firms such as bofa and deutschebank have pegged their targets around 1.1800 for March 2026.
This stance is consistent with broader market readings, although our internal coverage shows a slight divergence from ing's more optimistic view which targets 1.1700 for March 2026, suggesting alignment around the upper range rather than the lower endpoints seen from firms like socgen.
How other firms see it
Firm perspectives concerning dollar strength vary; monitor sentiments from firms like bofa and deutschebank that also foresee EUR/USD movements toward the 1.1800 area, providing a backdrop to the prevailing caution about the greenback. Contrarily, some firms, including morganstanley, have adopted a more optimistic disposition on dollar strength beyond the immediate futures.
A close watch should be maintained on EUR/USD's interaction with the ECB's decision-making, which could impact hedge ratios and volatility related to the upcoming figures as well as the US political landscape leading into the November midterm elections.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The Fed is unlikely to raise rates until 2027, limiting dollar upside.
- 02EUR/USD may approach 1.17 as market expectations adapt to the Fed's stance.
- 03Target views amongst institutions suggest a divergence with **ING** forecasting a more bullish Euro than some others.
- 04Political and economic developments surrounding the US midterms could impact dollar positioning.
Market implications
Traders should monitor EUR/USD closely as it approaches key resistance levels around 1.17. A failure to raise rates from the Fed by September could catalyze a shift in positioning toward the euro as hedging costs decline amid anticipated ECB moves.
Risks to this view
A shift in Fed policy or unexpected stronger US economic releases could invalidate the current bearish outlook on the dollar, leading to significant re-evaluation in dollar valuations across pairs. Additionally, geopolitical developments influencing risk appetite may further complicate dollar strength.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 0.6835 |
Citi | Bearish | 0.6700 |
MUFG | Bullish | 0.7000 |
Articles G10 FX Talking: Dollar upside looks limited Published 13:05 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar has been performing well on the view that the Fed will tighten. ING's take is that the Fed will ultimately ride out this inflation spike and keep rates unchanged heading into 2027. That said, it may take until September before the market is fully disabused of its current views.
Altogether, that means the dollar's upside looks limited from here Chris Turner and Francesco Pesole Dollar upside looks limited if the Fed stays on hold EUR/USD: Dollar enjoys a world of low forward guidance Spot One month bias 1M 3M 6M 12M EUR/USD 1.1437 Mildly Bullish 1.15 1.17 1.18 1.20 The dollar is largely holding onto the 3% gains made over the last two months. Those gains have been built on the few words we have heard from the Federal Reserve, which have largely focused on the commitment to price stability. In the absence of forward guidance, US data is going to have a bigger say in FX.
ING’s core call is that the data will not support a Fed hike this year. Unchanged Fed policy, particularly at the September FOMC meeting, can see EUR/USD trading back to 1.17. At the same time, we currently favour a follow-up hike by the European Central Bank in September – a hike which will see dollar hedging costs fall further.
Low hedge ratios on US assets leave the dollar exposed into the policy uncertainty around the November US midterm elections. USD/JPY: Intervention watch continues this summer Spot One month bias 1M 3M 6M 12M USD/JPY 162.14 Mildly Bearish 160.00 160.00 158.00 154.00 It is not clear that the Bank of Japan has undertaken any further intervention since the $70bn sold in late April/early May. There is a chance that we do see more in the 16-20 July window – around Japan’s Marine Day public holiday.
Intervention can only slow the move, however. A reversal will not be seen until either the BoJ hikes aggressively or the Fed turns more dovish. Markets suspect that the government is leaning on the BoJ not to hike too quickly.
The market is struggling to price in one further rate hike this year – which would take the policy rate to 1.25%. There could be a brief window to 164/165 this summer, but by year-end, and based on our Fed call, USD/JPY should be sub-160. GBP/USD: Steady Fed & BoE to keep cable in check Spot One month bias 1M 3M 6M 12M GBP/USD 1.3399 Neutral 1.34 1.31 1.33 1.35 Markets continue to price 40-45bp tightening cycles for both the Fed and the Bank of England over the next six to nine months.
Our call is that neither of them will deliver on those hikes, which means that GBP/USD can probably continue trading in the middle of its 1.32-1.36 range. If anything, we see greater downside risks in the near term, with the Fed likely to remain hawkish for another month or two and UK political risks returning to the fore in late July. Andy Burnham is widely expected to become the new PM on 20 July and will probably announce Ed Miliband as his new Chancellor shortly thereafter.
Sources & References
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