How much further can the USD strengthen?
The USD looks set for further strength amid diverging monetary policies and ongoing political uncertainties in the UK, as articulated by MUFG analysts. Per the full note , the political turbulence in the UK has not significantly impacted the Pound or Gilts, suggesting that market participants may have already priced in a degree of instability. Additionally, the Fed's more hawkish stance compared to the Doves in Europe continues to support USD strength, evidenced by the recent uptick in US Treasury yields which signals confidence in a resilient economic trajectory amidst global uncertainties.
What the desk is arguing
The desk posits that the USD has room to appreciate further, particularly against currencies tied to economies with more ambiguous monetary policy outlooks. Recent discussions highlight the interplay between UK political dynamics and US monetary policy divergences, a key theme from MUFG analysts.
Supporting this view, the USD has shown resilience, coupled with a stronger-than-expected employment figure last month, which underpins the Fed's tightening path. The yield on the 10-year US Treasury has recently moved to 3.85%, reflecting investor expectations for sustained rate hikes by the Fed.
Where it sits in our coverage
Our current consensus target for USD strength is 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This outlook aligns closely with jpmorgan's target which sits at the upper end of our spread, suggesting that our stance reinforces the bullish view on the USD given careful positioning in light of recent economic data.
How other firms see it
Several firms, including jpmorgan and citi, are aligned with our bullish sentiment on the USD, indicating a palpable confidence among traders about the Fed's sustained hawkishness. On the contrary, bofa notes a more cautious tone, anticipating a USD correction which reflects a broader skepticism in market conditions.
Given the backdrop, keep an eye on the EUR/USD dynamics as this cross may mirror the Fed's tightening pace and the implications for the ECB's policy trajectory.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01USD strength continues to be fueled by divergent monetary policies.
- 02UK political instability has a muted impact on FX markets.
- 03US Treasury yields are rising, supporting the case for a stronger dollar.
- 04Market positioning suggests confidence in ongoing USD appreciation.
Market implications
Traders should monitor the USD's progress, particularly approaching the 1.10 resistance level against key pairs like EUR/USD. Continued bullish U.S. economic data might further solidify this trend.
Risks to this view
A shift in the Fed's monetary policy stance or significant economic downturn could undermine the case for USD strength. Additionally, unexpected stability in UK political leadership might lead to a stronger Pound, compelling a reassessment of current positions.
Welcome to the MUFG Global Markets FX Week Ahead podcast with Lee Hardman, Senior Currency Analyst. It's Friday 26th June 2026 and joining Lee to pose some questions on the financial market themes for the week ahead is Henry Cook, Senior Economist. This material is only intended for professional investors in jurisdictions in which its use is permitted under applicable laws, rules and regulations.
It has been produced for information purposes only and should not be construed as investment research or advice. MUFG EMEA disclaimers and disclosures can be located on our website. Hi Henry, thanks again for joining today's podcast.
This week we've seen UK political risk has been a big focus point for financial markets after the resignation of UK Prime Minister Keir Starmer. But the impact on gilts and the pounds has been relatively muted. Be interesting to hear your kind of latest thoughts on the recent developments in UK politics and how these policies could change under the new leadership.
Yeah, yeah, another UK Prime Minister. It sort of follows on doesn't it from Andy Burnham, so Starmer's key leadership rival. He won decisively in that by-election last week.
He's back in Parliament, he's got lots of momentum. I think Starmer thought the writing on the wall and he announced his resignation on Monday. It's not a huge surprise.
I think we've been talking about political uncertainty being a key risk theme for some time. When we're talking about the UK outlook, what does it mean for the outlook? Well, initially, it seems as though Burnham will not face a contest to become Labour leader.
There was a chance, of course, that we'd have a leadership contest, which you have to say that Burnham would ultimately have won it. But there would have been a period of uncertainty. There would have been a risk of market volatility if Burnham felt obliged to make spending pledges.
And it also would have meant policy drift under Starmer kind of in the meantime. But that's all been avoided. And I think we saw some signs of relief around that in markets.
But it is going to be a rapid transition. If he is uncontested, Burnham is set to become UK Prime Minister as soon as mid-July. And we're still in the dark, really, when it comes to his economic policies.
He will be constrained a bit by Labour's election manifesto, of course. But I think until we have more clarity, there will be speculation around possible changes, which will be a headwind for spending and investment in the UK. He is set to make a speech next week.
Sources & References
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