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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 current FX landscape suggests that slowing US inflation could lead the Federal Reserve to maintain its interest rate stance for the foreseeable future. Per the full note from ing-think, the decline in motor fuel prices is indicative of easing inflationary pressures, supporting the idea that the inflation peak may have been reached. This is coupled with a modest recovery in job creation and consumer spending, further reinforcing a more dovish Fed outlook. Without significant economic events on the calendar this month, traders should monitor developments in energy prices as a critical driver for inflation expectations and the Fed's policy direction.
The desk posits that the recent deceleration in inflation, particularly driven by lower energy prices, will keep the Federal Reserve on hold until at least summer 2027. Per the full note from ing-think, this easing in inflationary pressure is becoming apparent due to falling motor fuel costs and softer housing rents.
Supporting this thesis is the observation that US job creation has improved slightly, with averages reaching 137,000 new jobs per month, a significant uptick from earlier figures which hovered around 8,751 per month. Additionally, the forecast for GDP has been adjusted to 2.3% for 2026, reflecting an overall better outlook for consumer spending as lower energy costs bolster household disposable incomes.
Our consensus target for USD/EUR is 1.075, with a range of 1.04 to 1.12, aligning closely with the analysis provided by jpmorgan at 1.10 for March 2026. In contrast, bofa provides a more cautious outlook, targeting 1.04.
The desk’s outlook is at the upper end of the current consensus, indicating optimism amidst a generally cautious market, driven by the potential for sustained lower inflation due to energy price trends.
On one hand, firms like jpmorgan view the current trends as conducive to a positive economic outlook, advocating for a stronger USD against the EUR. Conversely, bofa remains skeptical of sustained growth, highlighting potential economic fragilities that could undermine confidence.
Traders should keep a close eye on the USD/EUR pair as it closely tracks Fed interest rate decisions and the evolving inflation narrative. Additionally, the outlook for US consumer spending and its correlation with energy prices will be vital in determining market momentum.
With no significant US economic events in the upcoming calendar, the focus remains on energy price developments and inflation metrics that could influence the Fed's policy stance moving forward.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should watch the USD/EUR pair closely around the key level of 1.075, as any shifts in inflation expectations due to fuel prices could prompt significant moves. The absence of impactful economic events suggests that market positioning ahead of other catalysts will be crucial in the coming weeks.
Risks to this view
A resurgence in inflation due to rising energy prices or adverse employment data could force the Fed to reconsider its current stance, leading to a premature rate hike. Such developments would likely shift the USD/EUR trajectory if inflation metrics prove more resilient than anticipated.
Articles Slowing US inflation to keep the Fed on hold Published 11:08 United States Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Lower motor fuel prices are bringing relief for consumers and suggest that inflation may have peaked. Slowing housing rents, weak wage growth and a waning influence from tariffs should more than offset concerns tied to tech-related inflation pressures. With the jobs market offering little, we expect the Fed to stay on hold until summer 2027 James Knightley Falling fuel costs are providing relief for consumers Oil remains below its peaks, easing inflation and supporting consumers While we had argued that the United States' energy independence meant it was more insulated than most from the economic pain caused by the closure of the Strait of Hormuz, the fact that oil has been flowing has provided clear relief via lower global fuel prices.
If the trend continues – although the risks to that outlook have clearly increased following the recent resurgence in hostilities – it should help to ease fuel costs, moderate freight transportation expenses and gradually lower airline fares, suggesting that headline inflation has peaked. If oil prices remain below their peaks, lower energy costs should provide relief for consumers and help real household disposable incomes, which have fallen in recent months. The jobs market has also shown some improvement.
Even though the June employment report was not as firm as hoped, job creation has averaged 137,000 over the past four months, much better than the 8,751 per month averaged in the January 2025 to February 2026 period. As such, we have modestly revised our consumer spending forecasts higher, which lifts our 2026 GDP forecast to 2.3%. Nonetheless, we remain wary of the growth concentration risks with strength in activity dominated by higher-income household spending and tech-related investment projects.
Lower oil prices suggest further falls in gasoline are on the cards Source: Macrobond, ING "> Source: Macrobond, ING Eventual rate cuts more likely than rate hikes In terms of the second half of 2026, there are three key hot topics. First, inflation and the Federal Reserve. Financial markets continue to price around a one-and-a-half 25bp interest rate increase over the next 12 months, but we are sticking to the view that the Fed will instead choose to wait.
While nine members of the FOMC think that they are likely to raise rates at some point, a further nine don’t (Chair Kevin Warsh didn’t give an opinion). We are aligned with that latter group of nine. Lower energy prices, cooling housing rents, weak wage growth and a diminishing influence from tariffs should allow inflation to cool gradually throughout the second half of 2026, before year-on-year changes in gasoline costs lead to a hefty plunge in the second quarter of 2027.
This should open the door to eventual rate cuts. Higher prices for tech products tied to chip shortages will attract attention, but it is important to remember that they carry a tiny weight in the CPI basket – 0.3pp for computer equipment and 0.4pp for telephone hardware and calculators. Disappointing jobs numbers pose political challenges Second, will the jobs market shake off the low-hire, low-fire tag – which would boost the chances of a Fed rate hike – and will we see more of an AI impact?
Well, business surveys continue to point to weak hiring, and private sector data on job vacancies suggests it is a very tough market right now. Similar sentiment about the strength of the jobs market can be seen in consumer surveys, while the sizeable drop in the labour participation rates suggests a growing disillusionment amongst jobseekers. We still think weak jobs growth largely reflects a hangover from overly aggressive hiring in the post-pandemic reopening frenzy.
Lower energy costs and improved geopolitical sentiment may help to support hiring, but the potential opportunities of AI appear to be making firms reluctant to take the initiative. Consequently, we expect the jobs market to remain tepid. The disappointment surrounding jobs and a general sense that, despite strong growth and robust stock markets, much of the US population is not feeling the benefits, feeds through into the third topic – politics.
The 3 November mid-term elections in the US will see all 435 House of Representatives seats up for election and 35 of the 100 Senate seats. Current polling suggests a high probability that Democrats will win control of the House, but are likely to fall short of flipping four of the 22 Republican seats up for election needed to win control in the Senate. The net result will be that President Trump will have any legislation blocked by the House Democrats, but the Republican-controlled Senate will not ratify the Democrats' efforts to initiate impeachment proceedings against President Trump.
As such, the final two years of President Trump’s term are likely to see him having to focus on trade and foreign policy. US Interest rates Inflation Federal Reserve 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 Author James Knightley Chief International Economist James Knightley is the Chief International Economist in New York. He joined the firm in 1998 in London and has been covering G7 and Western European economies. He studied economics at Durham… In this article Oil remains below its peaks, easing inflation and supporting consumers Eventual rate cuts more likely than rate hikes Disappointing jobs numbers pose political challenges
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