Commerzbank's Thu Lan Nguyen highlights that the Federal Reserve's unanimous September rate hike has temporarily restored its credibility, supporting the US Dollar and prompting a downward revision of the EUR/USD year-end forecast from 1.17 to 1.15. The bank now expects only one further rate hike in December, with rates remaining unchanged through the end of 2027. Despite this, Commerzbank anticipates that both US and euro area rate expectations will be revised down over 2027, ultimately weighing more on the US Dollar than the Euro and allowing EUR/USD to gradually rise. The report also notes that if US-Iran relations improve and energy prices fall, EUR/USD could face further downward pressure, though any resulting dollar strength is not expected to be sustainable [1].
ING strategists Francesco Pesole and Frantisek Taborsky observe that rising back-end yields and risk-off sentiment are consolidating recent Dollar gains, even as these gains appear stretched relative to short-term fundamentals. They point to resilient oil prices, skepticism over US-Iran talks, and increased Federal Reserve hike pricing as factors supporting the ongoing USD rally. The strategists suggest that Brent crude could reach $110 per barrel before the end of the month, with the dollar finding additional support from the energy sector. They also note that the 2-year SOFR has risen by almost 20 basis points over the past 48 hours, reflecting the market's response to the Fed's hawkish remarks [2].
Both sources agree that the Fed's recent actions and market expectations for further rate hikes are underpinning the US Dollar's strength. However, Commerzbank projects that the dollar may come under pressure in the longer term as rate expectations are revised downward and concerns about Fed independence potentially resurface. ING, on the other hand, remains cautious about calling an end to the current USD rally, citing ongoing risk factors such as high oil prices and persistent hawkishness from the Fed [1][2].
Market implications discussed in both reports include a near-term consolidation of USD gains, supported by bond market dynamics and energy prices, with potential for further volatility depending on geopolitical developments and central bank policy shifts [1][2].
CONCLUSION
The US Dollar is currently supported by the Fed's restored credibility, rising yields, and resilient oil prices, with both Commerzbank and ING highlighting factors that could sustain or challenge this strength in the coming months. While near-term momentum favors the dollar, longer-term forecasts suggest potential headwinds as rate expectations adjust and geopolitical factors evolve. Market participants should remain alert to shifts in central bank policy and energy markets, which could drive further volatility in currency pairs such as EUR/USD.