Global Rates & FX Views: Central banks – the aftermath
Lead — As central banks navigate turbulence in the current economic landscape, market participants are keenly watching the implications of this week's pivotal Fed, BoE, and BoJ meetings. Per the full note from BofA Global Research, uncertainties surrounding the Fed's decision-making process signal potential volatility in 2y and 10y UST yields, impacting major FX pairs including EUR/USD, GBP/USD, and USD/JPY. The consensus across various firms anticipates a moderate uptick in the EUR/USD and GBP/USD pairs while the USD/JPY reflects a more bearish sentiment with targets as low as 150 in the Dec-26 horizon. With no major calendar events on the immediate horizon, investors are left to gauge sentiment and positioning amid this backdrop of uncertainty.
What the desk is arguing
The desk frames this as a critical juncture for currency markets given the uncertain outcomes from central banks this week. The Fed's cautious stance and the diverging paths of the BoE and BoJ have led to mixed signals in the rates space, which could materially affect the volatility and directionality of FX pairs.
BofA highlights that the market's focus is on yield movements, particularly for 2-year and 10-year UST yields, given that these are intrinsically linked to the relative attractiveness of USD-denominated assets. With discussions surrounding EUR/USD potentially targeting levels towards 1.1700 in Mar26, there’s considerable room for fluctuation based on economic sentiment and central bank rhetoric going forward.
Where it sits in our coverage
Current consensus for EUR/USD stands at 1.1700, within a range of 1.1200–1.2000. Notable targets by firms include: - Deutschebank: Mar26 at 1.1800 - Morgan Stanley: Mar26 at 1.2000 - Commerzbank: Mar26 at 1.1900
This view aligns with our internal coverage where we see EUR/USD targets underscoring a bullish outlook, particularly when juxtaposed against BofA's more conservative guidance at 1.1700, positioned near the median target with expected volatility ahead.
How other firms see it
Several aligned firms, including Deutschebank and Morgan Stanley, are forecasting a strengthening EUR/USD towards 1.1800 and above, suggesting a shared optimism among some market participants about the Euro's resilience and the dollar's challenges. Conversely, Citi and Rabobank present a more cautious outlook with targets reflecting potential downside.
As the market engages with central bank discourse, the EUR/USD trajectory appears closely tied to the Fed's impending rate moves and guidance, indicating that shifts in sentiment here will resonate strongly across related pairs like GBP/USD and USD/JPY, both of which are also under the influence of respective central bank shifts.
How firms align with this view
Aligned with the desk view
Key takeaways
- 01The Fed's cautious approach signals potential volatility in FX pairs as it impacts UST yields.
- 02Current consensus targets suggest a bullish sentiment for EUR/USD and GBP/USD in the medium term.
- 03Market participants should focus on central bank advancements as they pose pivotal influence over currency movements.
- 04Yield differentials remain a key driver of currency valuation as economic metrics unfold.
Market implications
Watch for potential fluctuations in EUR/USD, particularly as it hovers near the 1.1700 mark, while positioning strategies may need to account for significant shifts in UST yields influencing dollar strength. The relative performance of GBP/USD is also of interest as the BoE's stance evolves.
Risks to this view
Key risks include a hawkish pivot from the Fed that could contradict market positioning, leading to sharper corrections in EUR/USD and GBP/USD. Furthermore, unexpected economic data releases could alter the trajectory of the dollar’s performance and provoke a re-evaluation of consensus targets.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.1400 |
CIBC | Bullish | 1.2200 |
ING | Bullish | 1.1500 |
Please join Sphia Salim for a discussion with the global rates team on the implications of all the central bank decisions taken this week. We will review the exceptionally uncertain Fed meeting and debate the outlook for 2y & 10y UST yields. We will also discuss the takeaways from the guidance provided by the BoE and BoJ.
The call took place on Friday, July 31st, 2026. "Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. ©2026 Bank of America Corporation.
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Sources & References
How we cover this story
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