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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 38 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 38 institutional desks. No promotion.
The desk identifies shifting dynamics in interest rates as a pivotal influence on foreign exchange rates, particularly driven by oil prices and rising real rates. Per the full note from ing-think, the recent statements from Fed Chair Warsh indicating a potential for increased hikes have altered market expectations significantly, with a shift from 50:50 to 3:1 in favor of a 25bp hike in the September FOMC meeting. This scenario suggests a likely upward trajectory for USD against currency pairs like EUR/USD and GBP/USD toward the end of 2026. The consensus target suggests an average position doesn't fully reflect the hawkish narrative, potentially setting the stage for a stronger USD if current trends hold.
The desk frames the changing landscape of rate expectations due to comments from Fed Chair Warsh and Treasury Secretary Bessent as crucial for forecasting FX movements. The shift in probability for a September rate hike indicates that market participants are starting to price in a more hawkish Fed stance, which could catalyze USD strength versus EUR and GBP.
Key data points suggest that ongoing upward pressure on real yields reflects market sentiment more than inflation concerns, with the 10-year yield continuing to climb despite easing break-even inflation rates. This move indicates a structural influence on the yield curve, favoring a dovish outlook for the EUR/USD and GBP/USD, and thereby influencing short-term positions against the backdrop of oil pricing dynamics.
For EUR/USD, our coverage consensus target is 1.1700, with a range of 1.1200 to 1.2000 reflecting expectations of USD strength. Specifically, ing offers a target of 1.1700 for December 2026, while RBC has a slightly more bullish target of 1.2000 for the same period.
Our position is more aligned with the upper bound of this consensus range, suggesting that the potential for strengthened USD could push this pair higher than the current market anticipations.
Aligned firms such as ING and RBC see similar hawkish signals, while firms like Nomura and Scotiabank offer more cautious views regarding the potential strength of the USD. This divergence highlights a broad spectrum of market sentiment around interest rates across various institutions.
The trajectory of EUR/USD correlates closely with perceptions of the Fed's monetary policy ahead of any directional moves, emphasizing the importance of upcoming economic data releases related to central bank policies.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should closely monitor the 10-year treasury yield, which, if it continues to climb, could further bolster USD purchasing power against EUR and GBP. A focus on the impact of oil prices may also provide insight into short-term FX movements.
Risks to this view
A sudden downturn in oil prices or dovish signaling from the Fed could undermine the current bullish outlook for the USD, potentially realigning expectations more favorably for EUR and GBP. Additionally, unexpected economic data may alter rate hike trajectories.
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.1000 |
ING | Bullish | 1.1300 |
MUFG | Neutral | 1.1200 |
All 31 desk targets for EUR/USD
Articles Rates Spark: Curve influencers Published 17:47 Rates Spark Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Warsh and Bessent – the bond influencers. But bigger market pressures should dominate. Tactically, the oil price drives much of the short-term moves in rates.
Structurally, it's the global rise in real rates – that is the real influencer Padhraic Garvey, CFA , Benjamin Schroeder and Michiel Tukker Fed Chair Warsh and Treasury Secretary Bessent have their attention focused on the front end and back end of the yield curve Here's why Kevin Warsh and Scott Bessent can both see silver linings from latest developments Key moves are being seen on both ends of the curve through Monday, as the market continued to digest Chair Warsh's words from Friday. On the front end, the probability of a 25bp hike from the September FOMC meeting has flipped from 50:50 to 3:1 in favour. That's meaningful.
Not quite fully discounted. But absolutely heading in that direction. On the back end, the 10yr break-even inflation rate continued to ease lower.
Only by a few basis points. But it's the kind of move that should please Chair Warsh, as it suggests that his hawkish words have acted to contain inflation expectations, even if they weren't high to begin with (still in the 2.3% area). However, the 10yr yield continued to edge higher, just as it did on Friday afternoon.
The culprit is ongoing upward pressure on real yields, a theme we've opined on now for many months. Higher real yields suggest that the pressure being felt in long rates is not from inflation. It's from a combination of issuance pressure (current and anticipated), and it likely incorporates a positive productivity growth slant coming from the AI revolution.
Chair Warsh specifically referenced a positive secular growth dynamic up for discussion at the opening of the G20 summit in South Carolina. That gels with higher real rates. The optics of seeing Treasury Secretary Bessent deplaneing with Fed Chair Warsh from Air Force Two were interesting.
Not indicative of anything specific, apart from a reminder that both of these men have their attention squarely on the front end and back end of the yield curve. Chair Warsh effectively warned us on Friday that front-end rates may need to be adjusted higher. A week or so earlier, Treasury Secretary Bessent moved to contain long-end yields through an intention to more than double the volume of long-end buybacks.
He went on to assert on Monday that he was not targeting any particular level; rather, he was just prodding the market towards a fairer valuation, from his perspective. Ahead, the front end is liable to remain sticky now at elevated yields unless negated by a weak payrolls report on Friday. But back-end yields remain under rising pressure.
We continue to anticipate a move in the 10yr yield into the 4.75% to 5% area as the real-rate elevation pressure remains. Note that Treasury Secretary Bessent can still claim a victory lap, given the tightening seen in long-tenor swap spreads, vis a vis relative richening in long-end Treasuries. As a percent of total spreads, these are in some 10% since the buyback announcement, and looking reasonably resilient to the downside.
Overall, the curve should steepen from the back end. Printed Eurozone inflation is too high, but inflation expectations are still well-contained Consensus sees August’s eurozone headline CPI number tick up to 3.3%, but inflation should not be the main concern for euro rates. On a daily basis, oil is the key driver of rates, but overall the pricing of inflation risks remains very well-behaved.
The 2Y inflation swap stands at 2.5%, which is above target but far from alarming. Meanwhile, the 5Y5Y forward inflation swap is just 2.15%, reflecting a high degree of confidence in the ECB’s monetary policy. The bigger source of uncertainty can be found in real rates, which have been drifting higher over the past years, especially in the US.
Even though Fed Chair Warsh raises the risk of a perceived policy error, long-term market measures in the US still point to a benign inflation outlook. The 10Y inflation swap at 2.5% is actually at the lower end of the trading range from the past years. But with the 10Y UST at 4.75%, implied real rates are the ones testing new highs.
That doesn’t mean inflation risks can be safely ignored either. If we do get upside inflation surprises from the eurozone, euro rates can easily push higher still, especially at the short end of the curve. Second-round inflation risks remain a material risk and the ECB has shown a willingness to hike if necessary.
And with growth numbers still showing a robust economic outlook, we would see little pushback against another more hawkish turn. Tuesday's events and market view Out of the eurozone we will get preliminary inflation data for August, with consensus eyeing a rise to 3.3% for headline inflation and the core rate staying at 2.5%. Releases so far are pointing in the direction of the consensus, but that still means inflation is currently running well above the ECB’s target with little relief from the direction of geopolitics.
Other releases to watch out of the bloc are the final PMIs, which also provide the first individual August readings for Italy and Spain. From the ECB, Nagel and Vujcic will be speaking. The US publishes the manufacturing ISM with consensus eyeing only a marginal softening to a still solid 55.3.
Jobs-related data will be the main focus though, with the release of the JOLTs jobs openings data for July. The only scheduled Fed speaker for the day is Barr. In government bond primary markets, Germany will auction €5.5bn in 5y bonds.
Rates Daily 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 Padhraic Garvey, CFA Regional Head of Research, Americas Padhraic Garvey is the Regional Head of Research, Americas.
He's based in New York. His brief spans both developed and emerging markets and he specialises in global rates and macro relative… Benjamin Schroeder Senior Rates Strategist Benjamin Schroeder is a senior rates strategist at ING in Amsterdam. Before joining ING in 2016, he worked in fixed income research at Dresdner Kleinwort and Commerzbank in Frankfurt, Germany.… Michiel Tukker Senior UK & Eurozone Rates Strategist Michiel Tukker is a Senior UK & Eurozone Rates Strategist based in London.
Before ING, he worked as a quantitative economist for the Dutch central bank, at BlackRock in its Financial Markets… In this article Here's why Kevin Warsh and Scott Bessent can both see silver linings from latest developments Printed Eurozone inflation is too high, but inflation expectations are still well-contained Tuesday's events and market view
How we cover this story
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Cable sits 1.09% below the 20-firm median Dec-26 target of 1.35, with a 0.26-point dispersion that reflects sharply divided BoE-vs-Fed rate paths.
USD/JPY trades at 158.51, 1.61% above the 25-firm median Dec-26 target of 156.0, with a 30-figure dispersion signalling deep disagreement on the BoJ-Fed spread path.
EUR/USD spot sits 2.69% below the 31-firm median Dec-26 target of 1.145, with a 0.135 dispersion range signalling deep disagreement on the path ahead.
31 investment banks see EUR/USD at 1.1469 by Dec 2026
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