Rabobank's RaboResearch Global Economics & Markets has updated its outlook for the United States Federal Reserve, now forecasting a rate hike in December 2026 following recent FOMC speeches. The revision is attributed to the Fed's increased risk aversion regarding unanchored inflation expectations and a greater willingness to accept demand destruction in sectors outside of energy, which experienced a supply shock this year [1]. Despite this adjustment, Rabobank's forecast remains less aggressive than market expectations, which currently price in a new hiking cycle of 3-4 additional rate hikes. Rabobank anticipates the Fed will remain on hold through 2027, with only one rate cut per year projected for 2028-2030, and expects the Fed to stop at a higher neutral rate than its current projection [1].
In a related analysis, Rabobank discusses the EUR/USD dynamics since the Iran war, noting that shifting expectations for Federal Reserve policy have contributed significantly to the USD's strong performance during the summer and into the following month. The Euro's underperformance has also played a role in driving EUR/USD lower, as the EUR has failed to draw strength from the ECB's hawkish stance since the start of the Iran war [2]. Despite the Eurozone economy's resilience and the ECB's accelerated tightening cycle, concerns about growth risks—particularly due to the Eurozone's status as an energy importer—and European political uncertainties have weighed on the EUR [2].
For investors, the Euro is increasingly seen as less of an alternative to the USD. The USD's rally at the onset of the Iran war reaffirmed its safe haven status, which had been questioned last year. Rabobank attributes this to the greenback's dominance in the global payments system, a position that would take decades to challenge [2].
Market implications discussed in the sources include the USD's continued strength relative to the EUR, driven by both the Fed's policy outlook and the Euro's inability to capitalize on ECB hawkishness. The forecasted Fed rate hike and prolonged policy hold are expected to support the USD, while the Euro faces multi-layered headwinds from economic and political risks [1][2].
CONCLUSION
Rabobank's updated Fed outlook, featuring a December 2026 rate hike and an extended policy hold, is expected to bolster USD strength. Meanwhile, the Euro remains under pressure due to growth concerns and political uncertainties, making it less attractive as an alternative to the USD. The market takeaway is a medium-impact scenario favoring continued USD dominance in global currency flows.