Rates Spark: Higher rates amid a fragile calm
The desk's analysis reflects a bearish sentiment on rates as they resume upward pressure, driven primarily by improved risk sentiment amid idiosyncratic AI events and stable economic conditions. Per the full note from ing-think, the 2-year USD swap surged 12 basis points, indicating market positioning is shifting towards a cautious bullish stance. Current consensus values for EUR/USD suggest a median March 2026 target of 1.1700, supported by forecasts from firms like **commerzbank** and **rbc**. Traders should remain vigilant ahead of key AI-centric milestones next week, particularly Anthropic's IPO and NVIDIA's Q3 results, which could shift the macro outlook significantly.
What the desk is arguing
The desk frames this as a resurgence in upward rate pressure, as global risk sentiment improves, particularly with regard to AI developments. According to ing-think, the upward movement in rates is aligned with the heightened performance of the 2-year USD swap, which experienced a notable increase of around 12 basis points.
Evidence of a more stable risk environment, coupled with solid jobless numbers, signals a cautious market optimism, even though key AI-related events loom ahead. The commentary suggests attention should be paid to upcoming catalysts that could reverse current trends, especially given that disappointments may prompt US rates to decline as seen in recent weeks.
Where it sits in our coverage
Our consensus target for EUR/USD currently stands at 1.1700, ranging from a low of 1.1000 to a high of 1.2000, reflecting a medley of firm projections: - commerzbank: Dec26 target 1.2200 - rbc: Dec26 target 1.2000 - nordea: Dec26 target 1.1000
The desk's view aligns closely with the consensus, notably gravitating towards the upper end of forecasts. Given that the sentiment is bearish regarding rates, it points to underlying uncertainties that could justify even higher EUR/USD levels if the anticipated resolutions from the AI space falter.
How other firms see it
Aligned firms such as commerzbank and cibc share a bullish outlook on EUR/USD, with Dec26 targets reaching 1.2200 and 1.2200, respectively. In contrast, firms like abnamro express a more cautious view, indicating a Dec26 target of 1.1500, and lloyds is notably less optimistic with a target of 1.1200.
Market participants should monitor overlapping themes in the ECB's rate path and how they interact with broader macroeconomic indicators. The dynamics of the EUR/USD trajectory will likely be influenced by upcoming AI announcements, especially as the market interprets potential shifts in monetary policy responses.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Upward pressure on rates revives tactical bearish views amidst a fragile calm.
- 02A 12bp rise in 2-year USD swaps signals a shifting market sentiment.
- 03Consensus for EUR/USD is currently at 1.1700, suggesting a cautiously optimistic outlook.
- 04Upcoming AI events may catalyze significant market shifts.
Market implications
Watch for EUR/USD to potentially test levels near 1.1700 as traders react to forthcoming AI-related announcements. The reactions to NVIDIA's Q3 results on the 13th may have ripple effects across rates and currencies depending on the market's sentiment adjustments.
Risks to this view
Should the anticipated AI developments underperform, particularly regarding NVIDIA's report, it could lead to a swift correction, pushing US rates lower and altering the bullish sentiment presently aligned with EUR/USD. A subsequent downward revision in growth expectations would also impact the ECB's rate trajectory.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Neutral | 1.1200 |
UniCredit | Bullish | 1.1600 |
UOB | Bearish | 1.1140 |
Articles Rates Spark: Higher rates amid a fragile calm Published 07:30 Rates Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Rates are back under upward pressure, reviving our tactical bearish view. AI risks have become more idiosyncratic, but upcoming catalysts could quickly reverse the move. France remains under pressure, while Italy could see a rating upgrade Michiel Tukker and Benjamin Schroeder Tactically bearish on rates but AI event risk ahead of us Price action suggests global rates are happy to push higher again, and we therefore return to our tactical bearish call.
Risk sentiment is improving, with AI worries turning more idiosyncratic, focused mostly on NVIDIA’s leadership questions. Amid more stable risk conditions, but without strong catalysts, the 2yr USD swap jumped up by some 12bp on the day. Of course, one could argue oil ticked higher and jobless numbers were robust, but nothing that would warrant such a strong reaction by itself.
Buying the dip seems to be the recurring theme in equity markets, but we warn of some key event risks ahead. Next week, we have both Anthropic’s IPO pricing and NVIDIA announcing third-quarter results. These two events are seen as important bellwethers for the broader future of AI and can also shake the US macro outlook.
From the past weeks, we’ve seen how any disappointments can quickly push US rates lower. Europe is relatively more shielded from AI, but global risk sentiment can be quick to pull down longer rates in particular. We argue that the front end of the EUR and GBP curves should remain focused on inflation, but the belly of the curve is more exposed to sentiment.
The euro swap curve still paints a very optimistic view of the ECB’s terminal rate above 3%, which in our eyes can only hold if the growth outlook improves materially. A global setback in AI would push against this narrative, raising expectations for rate cuts after the initial hiking cycle. EGBs drift with the broader sentiment while Italy is up for review by S&P The mood in the European bond market has again darkened somewhat.
In part, this owed to the spillover from tech-related equity jitters and unease around geopolitics after the latest comments from US President Donald Trump, but the general repricing higher of rates, which originated in the US, has done its share as well. France has lagged its peers with the 10y OAT/Bund back towards 150bp. There has been little news on the situation in France, but it is worth noting that any hopes of ECB President Christine Lagarde pulling France out of its political deadlock were dampened after the first polls this week showed she would get only 14% of the first-round votes, similar to other centrist candidates.
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