Rates Spark: Either way, the Fed will surprise
The desk anticipates a nuanced response from the Federal Reserve during its upcoming meeting, suggesting the Fed will likely maintain its current rate, potentially surprising the market which sees a 30% chance of a hike. Per the full note source, the underlying forces, particularly the influence of oil prices, are creating a split sentiment among traders, complicating predictive assessments. With our economists projecting no rate hike this year if oil continues to decline, the market's dovish shift appears justified. This dovish stance is reinforced by ongoing trends in the UK and Eurozone, where tightening is also seen as unlikely given current economic indicators.
What the desk is arguing
The desk expects the Federal Reserve will opt for a hold on rates during its next meeting, countering market expectations that suggest a hike is plausible. Per the full note source, the current elevated oil prices have contributed to a heightened perception of inflationary pressures, yet projecting a material dovish pivot remains difficult without further data.
The consensus view among our economists aligns with a hold, driven by a potential downturn in oil prices that may obviate the need for immediate action. This positions the 2Y USD swap rates for a downward shift, consistent with the anticipation of a stable Fed policy over the coming months.
Where it sits in our coverage
Our consensus target for GBP/USD stands at 1.3500 with a range from 1.2400 to 1.3800. Specific Dec-26 targets among leading firms include: - goldman: 1.3600 - commerzbank: 1.4020 - bofa: 1.4300
This perspective indicates that we are aligned within the lower spectrum of forecasts but resonating closely with bofa, which maintains a similar target outlook for Mar26. The broader market seems too hawkish, particularly in considering the Fed's possible reluctance to shift policy aggressively.
How other firms see it
There is a general alignment from firms such as goldman and commerzbank, both forecasting higher targets in the medium term, while more dovish sentiments can be seen from bofa with their lower projections. This split highlights a crucial divergence in how firms perceive the Fed’s potential path.
The dynamics of GBP/USD are tightly linked with the actions of the Fed and the Bank of England, making the path of these currencies particularly sensitive to upcoming central bank communications and inflation prints.
What the calendar says
Upcoming events, including the Fed's meeting, are critical as they will shape expectations around rate movements in the context of current selling pressures stemming from oil price adjustments. As the situation evolves, any developments will clearly affect market positioning and sentiment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The Federal Reserve is expected to hold rates, defying a 30% market expectation for a hike.
- 02Oil prices remain a significant influencer on inflation expectations and hence rate decisions.
- 03Market positioning reflects a general hawkish sentiment that may not align with economic fundamentals.
- 04GBP/USD forecasts reveal a convergence around the 1.35 target amid varying viewpoints from different banks.
Market implications
Traders should closely monitor the Fed's rate decision and any indications regarding future hikes, especially with GBP/USD currently trading around 1.3476. A clear hold could solidify the anticipated dovish sentiment in markets, allowing GBP to stabilize or strengthen against the USD, particularly if oil prices continue to decline.
Risks to this view
A rapid rebound in oil prices could upset current projections, leading the Fed to reconsider its stance and possibly hike rates, which would impact the USD's strength. Additionally, any unforeseen inflation data compelling a hawkish pivot would challenge the desk's current views.
GBP/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.3200 |
Bank of America | Bearish | 1.2800 |
UOB | Bullish | 1.3445 |
Articles Rates Spark: Either way, the Fed will surprise Published 07:31 Rates Spark Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Markets are split about the Fed's move on Wednesday, and with no forward guidance, we don't expect that to change. In any case, we still take a more dovish view than markets, not just of the Fed, but also the Bank of England and European Central Bank. But with oil still the main driver, timing a material dovish turn remains difficult Michiel Tukker We don't think the Federal Reserve will hike rates this week, but markets see a significant 30% probability Markets still too hawkish, but hard to fight against oil The key event to watch this week will be the Federal Reserve meeting on Wednesday, especially now that markets are split about the outcome.
The priced-in probability of a hike is around 30% and has been feeling upward pressure on the back of higher oil prices. This weekend's headlines took Brent oil below $100 again, but the situation in the Middle East remains fragile. Our economists expect a hold at this Fed meeting, and if oil prices ease further, no hike should be needed at all this year.
That means we still see significant scope for 2Y USD swap rates to move lower from here. Having said that, we might not learn much from Fed Chair Kevin Warsh at this meeting given his dislike for forward guidance. We also have the Bank of England meeting on Thursday, but here markets only see a negligible chance of a hike.
Still, similar to the US, we think markets are positioned too hawkishly. Unless new forecasts start showing inflation above 4%, the BoE should be able to hold the policy rate at 3.75%. The front end of the sterling curve continues to be driven by oil, but 10Y gilt yields could also face more upward pressure from the ongoing political uncertainty.
In the eurozone, we have inflation numbers coming in on Friday, which will be watched closely. Last week the ECB again emphasised the lack of data available to assess the magnitude of second-round risks. This also explains why euro swap rates have religiously followed oil prices, given it’s still the only timely data point that helps predict the potential impact on inflation.
Unfortunately, with oil prices higher again than a month ago, this inflation print will not provide a complete picture. If core inflation manages to stay at 2.4%, that should at least provide some peace of mind that the pass-through so far is not excessive. Having said that, a September hike will be more a function of oil and gas prices from here than the CPI figures.
Monday's events and market views From Germany, we start the day with Ifo survey outcomes, where consensus sees the expectations component improving from 84.1 to 84.7. But similar to the better PMI readings from last week, these figures do not fully account for the latest escalation in the Middle East. The US will publish durable goods orders for June.
Sources & References
How we cover this story
Cross-firm research
GBP/USD Consensus Check: 1.35 Target, 0.23 Spread — Week of July 27, 2026
Cable trades at 1.3356 against a 21-firm median Dec-26 target of 1.35, leaving spot 1.07% below consensus with a 0.23 range separating bulls from bears.
GBP/USD Consensus Check: Week of July 26, 2026
Cable trades at 1.3324, roughly 1.3% below the 21-firm median Dec-26 target of 1.35, with a 0.23 spread separating the most and least bullish desks.
GBP/USD Dec-2026 Consensus: 1.35 Target, 0.23 Spread Across 21 Banks
Cable trades 1.30% below the 21-bank median Dec-2026 target of 1.35, with a 0.23 spread separating Morgan Stanley's 1.47 bull case from Citi's 1.24 bear.