Forex. US Dollar: Markets Start to Price Some Hikes – ForexNews.PRO
Moving towards year-end, we’re starting to see FX markets looking ahead into 2026 and pricing the first rate hikes amongst a broader range of countries. Beyond Japan, the market now prices hikes in Australia and Canada, and could perhaps even start to do so for the eurozone after today’s comments from the ECB’s Isabel Schnabel. This could weigh on the US dollar
USD: Looking at the Broader Rate Story
As we move into year-end, one notable theme is a market pricing the lows in interest rate cycles in a broadening number of G10 countries. Aside from the independently hawkish Bank of Japan story, the market is now pricing a first full 25bp hike next year in the likes of Australia, New Zealand and Canada. And the European Central Bank’s Isabel Schnabel (see below) says she doesn’t mind that pricing emerging for the eurozone, either.
Assuming that the Federal Reserve stays in dovish mode – we’ll find out more about that on Wednesday – a turn in the policy rate cycles overseas should be another factor contributing to a mildly weaker dollar in 2026. On this subject, we’ll also get to hear from central bankers in Australia and Canada at their policy rate meetings on Tuesday and Wednesday this week.
In other news today, China has delivered another upside surprise in its export performance, with perhaps two takeaways. The first is that global demand is holding up quite well despite this year’s tariff volatility. The second is that China’s domestic demand remains subdued, and if it isn’t careful, trading blocs like the eurozone will raise protective trade barriers if there is not enough reciprocal demand from the Chinese side.
In terms of the US data calendar this week, we’ve got US JOLTS job opening data tomorrow and the FOMC meeting on Wednesday evening. The Fed could be a positive event risk for the dollar in that it seems hard for the Fed to validate the 90bp of easing priced into Fed Funds futures by early 2027. However, the potential formal nomination of Kevin Hassett as Fed Chair over the coming months and the seasonal factors keeping the dollar weak into year-end should limit the dollar’s upside.
For today, DXY could continue to trade in a tight 98.80-99.20 range.
EUR: Schnabel Sounds Upbeat
Whisper it, but we have a key ECB official suggesting that eurozone growth risks could be to the upside. The ECB’s Isabel Schnabel made these remarks in an interview released this morning, citing that upside surprises could come from three directions: household consumption, private sector investment and government outlays on infrastructure and defence. These remarks probably need to be seen in the context of her hawkish background and perhaps as a foil to those at the ECB still favouring one last rate cut. But Schnabel has suggested the ECB could revise up its growth forecasts in its next forecast round on 18 December and has said she’s comfortable with markets pricing the next ECB move as a rate hike.
These comments have helped the euro this morning and stand to narrow US hedging costs for eurozone investors further still.
1.1630-1.1680 is the short-term range, with an outside risk of a push to the 1.1700/1730 before Wednesday’s Fed event risk.
