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 , 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 |
|---|---|---|
Goldman Sachs | Bullish | 0.7000 |
MUFG | Bullish | 0.7000 |
J.P. Morgan | Bullish | 0.6800 |
All 25 desk targets for AUD/USD
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.
Miliband looks £-negative. Expect a 7-2 vote for unchanged rates at the 30 July BoE meeting. EUR/JPY: Glued to 185 Spot One month bias 1M 3M 6M 12M EUR/JPY 185.44 Neutral 184.00 187.00 186.00 185.00 EUR/JPY has stabilised near 185 – helped in part by range-bound equity markets.
Tech valuations remain a hot talking point – especially the drop in free cash flow metrics – but there are no clear signs that a reversal is imminent. In general, if we return to a more benign environment of softer energy prices and no further Fed tightening, EUR/JPY should retain a modest upward bias. On the ECB side, we narrowly think another hike will be seen in September.
This is contingent on core inflation staying high this summer and government energy subsidies being removed. The yen is undoubtedly very cheap on many longer-term valuation metrics – but we cannot see a catalyst for a reversal. EUR/GBP: Lowest levels in a year Spot One month bias 1M 3M 6M 12M EUR/GBP 0.8456 Mildly Bullish 0.86 0.87 0.88 0.90 EUR/GBP has broken to the downside of a tight trading range and is now trading at its lowest levels in a year.
Sterling's gains appear to be driven by a low-volatility environment that favours the UK's relatively high interest rates, plus the unwinding of some short GBP positioning. Where to from here? We very much doubt the BoE will deliver on any of the BoE tightening priced in by the market.
And we doubt there will be a bullish re-assessment of UK growth prospects once Andy Burnham takes charge. Here, he will have to raise taxes if he wants to increase social spending. We would not chase EUR/GBP lower below 0.85 and still see a reasonable case that EUR/GBP ends the year near 0.87/88.
EUR/CHF: FX intervention picks up Spot One month bias 1M 3M 6M 12M EUR/CHF 0.9244 Neutral 0.92 0.92 0.92 0.92 In late June, the Swiss National Bank confirmed it had bought CHF3.9bn in FX in 1Q. This was when EUR/CHF briefly traded sub-0.90 on the outbreak of the Middle East conflict. The amount is relatively small, however, when compared to 2020 activity.
EUR/CHF remains a positive beta on the global rates story. As the SNB looks likely to keep the policy rate at zero for a good while yet, EUR/CHF is being dragged round by prospects of ECB rate hikes. Yet the ECB tightening cycle looks over-priced (we see just one more hike) and we see EUR/CHF upside as limited.
Last month, we said the CHF was being offered as the dollar debasement trade unwound. How USD/CHF trades at 0.80 is key. EUR/SEK: Markets still too hawkish on the Riksbank Spot One month bias 1M 3M 6M 12M EUR/SEK 11.04 Neutral 11.05 10.90 10.80 10.60 We expect EUR/SEK to stay just above 11.00 for most of 3Q, primarily on the back of our call for a September ECB hike.
Markets are pricing in 20bp of Riksbank tightening this year, but we expect the first move in 1Q27 as the inflation outlook remains muted. Hawkish risks would increase with a Middle East re-escalation, but a hike may still only happen after the September election, which we don’t expect to have any FX impact. We still see some downside potential for EUR/SEK from September onwards.
A dovish repricing in Fed expectations and lower US dollar should benefit the krona more than the euro. Still, tighter rate differentials mean a shallower profile than pre-war. EUR/NOK: Krone has room to rally Spot One month bias 1M 3M 6M 12M EUR/NOK 11.17 Bearish 11.05 10.90 10.80 10.70 We have greater conviction in a bearish EUR/NOK call than in a bearish EUR/SEK call.
We think oil prices face short-term upside risks regardless of fresh US-Iran tensions, and our call for dovish Fed repricing should help the krone by improving overall FX liquidity. Support for the krone should also come from an improvement in its already attractive implied yield. We expect another Norges Bank hike to 4.50%, either in August (our baseline) or September.
That should be the end of the cycle though. With limited downside room for oil, the main downside risks for NOK stem from another hawkish repricing in Fed rate expectations, and/or fresh stock market jitters. EUR/DKK: Back to intervention Spot One month bias 1M 3M 6M 12M EUR/DKK 7.4751 Neutral 7.47 7.47 7.46 7.46 The Danish central bank (DN) bought DKK 0.75bn (c.USD 115m) in June to defend the currency.
This is the first intervention since January 2023, but not entirely surprising timing-wise. DN had the option to hike more than the ECB on 11 June to tighten the rate gap, and instead decided to follow the usual intervention-first approach. The size of this intervention is very small and could suggest this is the start of a campaign.
Denmark’s ample FX reserves offer plenty of intervention firepower, we are tempted to think DN will deliver a larger hike than the ECB in September. We expect a return to 7.460 by year-end. USD/CAD: Loonie recovery should be slow Spot One month bias 1M 3M 6M 12M USD/CAD 1.4138 Neutral 1.41 1.39 1.37 1.36 Canadian unemployment declined for a second consecutive month in June, thanks to a rebound in hiring.
But inflation will probably fall back below the 3% target upper bound in June, and we don’t expect a large enough pick up in the core rate to justify a rate hike this year, unless energy prices spike higher. While the Canadian dollar could enjoy some support from a bottoming out in oil prices, its carry appeal remains low. The BoC may keep its options open in July, but markets won’t be easily convinced to push expectations aggressively higher from the current 17bp by year-end.
USMCA headlines can quickly emerge as a drag for the loonie. AUD/USD: Waiting on a sustainable rally Spot One month bias 1M 3M 6M 12M AUD/USD 0.694 Mildly Bullish 0.70 0.71 0.73 0.73 The more cautious tone by the Reserve Bank of Australia on further tightening has kept hawkish expectations in check: only 13bp is priced by December. We expect a prolonged hold, but the RBA has previously shown it can react swiftly to upside surprises in inflation.
We expect a structural return above 0.70 in AUD in the coming months. Carry is attractive, terms of trades have improved, and some dovish Fed repricing could offer the right external setting. CFTC data shows speculative positioning on AUD has flipped negative in June for the first time since January.
The Aussie had likely suffered from profit-taking in crowded longs, but now looks more capable of forming a sustainable uptrend. NZD/USD: Riding the rate hike enthusiasm Spot One month bias 1M 3M 6M 12M NZD/USD 0.5779 Mildly Bullish 0.58 0.59 0.60 0.60 The Reserve Bank of New Zealand hiked rates in July and is signalling another move in coming meetings. We suspect that this hawkish tone was more aimed at preserving market hawkishness than out of strong conviction.
Two of the six policy committee members may not be on board with this hawkish shift, and 50bp of tightening in the curve by December looks a bit too aggressive. Our call is another hike in September or October, followed by a pause into 2027. Short term momentum looks good for NZD, but we could see a slowdown in the rally on some dovish reassessment of expectations.
We expect AUD to outperform NZD in 4Q. 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… 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…
Sources & References
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