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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 37 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 37 institutional desks. No promotion.
The desk anticipates that the U.S. 10-year yield will not only exceed but also stabilize above the 5% mark as pressures from inflation and fiscal dynamics persist. Per the full note from ing-think, there's a strong consensus that recent monetary policy adjustments won't significantly alter the outlook for long-term rates, as evidenced by their forecast of a rise to 5.25% imminently. Given the overall market sentiment and a heavy emphasis on continued inflationary pressures, traders should closely monitor shifts in the yield curve. This backdrop comes ahead of expected influences from the Bank of England's forthcoming decisions.
The desk's position is that the U.S. 10-year yield is set to breach and remain above 5%, with a potential target of 5.25%. This perspective is grounded in the reality that the recent 25 basis point increase in rates fails to address the underlying issues tied to inflation and government financing, which continue to place upward pressure on long-term yields. Per the full note, the recent calmness in the back-end of the curve will likely prove temporary as inflation remains elevated, alongside a growing fiscal deficit.
The commentary notes that the backdrop is critical, as inflation expectations have shown a recent decline, suggesting that yields could stabilize at these levels. The market's response immediate post-rate hike reflected a cautious acceptance of the current yield environment around 4.95%, indicating underlying trends are already in motion aimed at revisiting higher yield levels.
Currently, the EUR/USD spot is at 1.1446, with firms projecting a range from 1.1200 to 1.2000 for March 26, 2026. Notable forecasts include socgen at 1.1700, morganstanley at 1.2000, and rbc proposing 1.1600.
The desk's view aligns closely with the higher end of the consensus, indicating a more bullish perspective relative to broader forecasts across the sector.
Many firms are focused on the implications of the Fed's rate hikes and share a similar interpretation regarding yields' outlook. For instance, commerzbank and ing hold bearish views on long bonds. In contrast, firms like morganstanley appear more optimistic regarding bond yields potentially stabilizing at lower levels.
Watch for currency pairs such as EUR/USD and GBP/USD, which are likely to mirror the influences dictated by the U.S. yield trajectory and Federal Reserve policy decisions.
How firms align with this view
Key takeaways
Market implications
Traders should pay attention as the U.S. 10-year yields approach the critical 5.25% level. This movement could precipitate shifts in currency pair valuations, particularly against the backdrop of next week's data releases concerning the Bank of England's policy stance.
Risks to this view
A significant reversal in this view could arise from unexpected dovish signals from the Fed or a surprising drop in inflation rates, which may prompt a re-evaluation of long-term rate projections and potential shifts in market sentiment.
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bearish | 1.1500 |
UBS | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
All 30 desk targets for EUR/USD
Articles Rates Spark: US 10yr likely gets above and stays above 5% ahead Published 16:50 Rates Spark Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Chair Warsh delivered on the market discount, and yes indeed, did so after all the talk that this Fed would do things differently. It was still an eloquent performance. But it won't rescue the back end of the curve.
We identify 5.25% as a next target for the US 10yr yield. Over to the Bank of England next Padhraic Garvey, CFA , Michiel Tukker and Benjamin Schroeder The Fed raised rates by 25bp. We maintain our bearish stance on long bonds and see the UST 10yr yield heading toward 5.25% The Fed calms the back end, but we’d not be getting too comfortable on it ahead Ahead, we maintain a bearish stance on long rates despite the calmness post the decision, as a 25bp hike does not materially change the dynamics that have hampered long rates in recent months.
Inflation remains high, as does the fiscal deficit, as is wider issuance. And the AI productivity-driven narrative remains in place. The odds see the 10yr yield breaking back above 5% in the days and weeks ahead.
If so, the market will begin to settle at above 5%, and ponder the 5.25% to 5.5% range as an area that is perfectly attainable in light of the still quite loud mood music that has been driving long-end yields. Delivery of the anticipated 25bp hike, by definition, should not have a material effect. The back end initially took the decision very fine, with yields steady in the 4.95% area, although it had shown a mild bias to test lower, as had been the theme through the morning into the decision.
What helped here was the price action of previous days that saw the 10yr yield get above 5%, and indeed close above 5%, thus ticking off the need to necessarily have that reaction post this decision. Chair Warsh will be pleased that the breakout of the 10yr yield shows a moderate fall in inflation expectations, which telegraphs a nod of approval from the market to the hike as an inflation containment one. The 10yr real yield is a tad higher as an offset.
Also, the 30yr yield is a tad richer vs SOFR, although not by much. Even though the 30yr yield is still higher than it was before Treasury Secretary Bessent's buyback announcement, it’s well below the subsequent highs. And it’s clinging on to a 4bp richening versus SOFR compared with the pre-buyback announcement level.
At the other end of the curve, the 2yr was a tad spooked by the unanimity shown by the committee on the hike (Chair Warsh voted for the hike too), and the implied priming for another hike from the dot plot. So, the 2yr yield is up 10bp to almost 4.7% post the decision. And the curve is flatter, mostly from the front end, and the 2/10yr Treasury yield curve is back below 30bp.
The 5yr is flat on the 2/5/10yr fly though, suggesting that if there are more hikes, it should not be many. Nothing of note on the plumbing, apart from noting ample bank reserves, suggesting a degree of comfort with balance sheet circumstances. Which is fair.
We await the outcome of further deliberations in this space by the end of 2026, with the yet-to-come prescribed action to be taken from 2027. Markets too hawkish on Bank of England, but oil pushes against us The Bank of England (BoE) is next, and even though we see significant potential for a dovish repricing in sterling rates, we don’t see that happening in the near term. We expect the BoE to hold rates steady for the time being and even see scope for cuts in 2027.
In contrast, markets see the BoE hike almost four times over the next year, more so than the European Central Bank and the Federal Reserve. Trading against markets is challenging, however, given the strong correlation with oil. A $10/bbl increase in oil pushes up the 2Y GBP swap rate by some 15bp.
With oil staying in the driving seat for sterling rates, the BoE is unlikely to trigger a drastic turn for now. The latest inflation data does not show concerns about second-round inflation effects. One could argue the same for the ECB, even though it did pursue a rate hike last week.
But compared to the ECB, with a Bank Rate of 3.75%, monetary policy in the UK is arguably already in contractionary territory. Meanwhile, job numbers reflect a cooling economy, so the inflation pass through to wages should be limited. As such, we don’t expect the Bank of England narrative to turn more hawkish as we witnessed at the Fed and ECB.
We think 10Y gilt yields should also come down in 2027 as markets reprice inflation risks, but upward pressure on longer-dated gilts can sustain. Global supply pressures in the form of government spending, quantitative tightening (QT) and AI issuance can continue to increase longer-dated rates. We’ll therefore also be watching for revisions of the Bank of England’s pace of QT, which we think has had a significant contribution to higher gilt yields .
Our baseline is for a decrease in the pace of QT from £70bn to £50bn, since this would approximately keep active sales constant. These numbers are in line with consensus. We do see a small chance that the Bank of England slows the pace by more, or even halt the active sale entirely for longer maturities.
The argument would be that the balance sheet has already shrunk enough and the private demand for longer maturities has fallen. This could benefit longer-dated gilts and help tighten the spread between gilts and swaps. Thursday’s events and market view The BoE is the main event of the day with markets seeing only marginal chances for the Monetary Policy Committee to decide on a hike – some 2bp are discounted, equivalent to a roughly 10% probability of a hike.
Ahead of the BoE we will hear from a number of ECB speakers, with Chief Economist Lane, France’s Moulin and Finland’s Rehn slotted for the day. The eurozone will also release final CPI data for August. The US will release the weekly jobless claims data and housing-market-related data: building permits, housing starts and pending home sales.
In primary markets, Spain will auction 6y, 8y and 10y bonds (€6bn), while France auctions 3y to 6y bonds (up to €13bn) as well as a new 11y inflation-linked bond (up to €2.5bn). The US auctions 10y TIPS (US$19bn). 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… 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… 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.… In this article The Fed calms the back end, but we’d not be getting too comfortable on it ahead Markets too hawkish on Bank of England, but oil pushes against us Thursday’s events and market view
How we cover this story
Fed hawkishness creating fresh EUR/USD selling pressure suggests market repricing higher-for-longer USD rates relative to ECB policy trajectory.
Rising yields supporting USD strength; EUR/USD trading below 1.15 suggests market repricing of relative rate differentials favors dollar appreciation.
Hawkish Fed guidance supports USD strength and widens rate differential favoring dollar positioning into week-end.
Cable trades 1.72% below the 20-firm median Dec-26 target of 1.36, with a 0.26-point dispersion that reflects sharply divided BoE-vs-Fed rate paths.
EUR/USD spot sits 1.85% below the 30-firm median Dec-26 target of 1.1684, with a 0.14 dispersion range signalling material disagreement on the Fed-ECB endgame.
USD/JPY trades at 157.07, roughly 3.3% above the 23-firm median Dec-26 target of 152.0, with a 25.5-point dispersion signalling deep disagreement on the BoJ rate path.
30 investment banks see EUR/USD at 1.1639 by Dec 2026
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