Both ING and Societe Generale highlight the potential for hawkish signals from the Federal Reserve to impact currency markets, particularly EUR/USD and USD/G10 pairs. ING’s Francesco Pesole notes that EUR/USD is currently driven by war developments and Fed communication, with a hawkish Dot Plot revision posing downside risks for the pair, potentially pulling EUR/USD back to the 1.150 handle [1]. Societe Generale similarly argues that a mildly restrictive Fed stance and possible hawkish adjustments to the Summary of Economic Projections (SEP) could support the Dollar against G10 and EM currencies [2].
ING points out that the European Central Bank (ECB) meeting follows weak ZEW expectations data, which fell to an 11-month low due to war-related fears. The ECB may need to consider concerns about growth and the temporary nature of energy shocks, possibly prompting some pushback against markets’ ultra-hawkish bets. However, ING sees dovish risks for the ECB, though the euro's sensitivity to short-term rate differentials has recently diminished [1].
Societe Generale provides further detail on the Fed’s policy rate, currently at 3.75% (upper target), describing it as mildly restrictive. The bank notes that an upward revision to 2026 PCE inflation could lead the FOMC to remove the single projected rate cut, which would be interpreted as hawkish for USD/G10 and USD/EM. There is a small chance that dissenting members may prefer a rate cut, but if their dovish votes are withdrawn, the outcome would be seen as hawkish [2]. Societe Generale also mentions that Chair Powell’s press conference is unlikely to offer major new insights, and if the labor market deteriorates, the next rate cut could be brought forward [2].
Jan Groen, Societe Generale’s US economist, revised his Fed call to no change in 2026 and two cuts in 2027 based on a higher inflation path [2]. ING, meanwhile, suggests that the ECB’s dovish risks may not have a huge impact on the euro given reduced sensitivity to rate differentials [1].
CONCLUSION
Both ING and Societe Generale emphasize that hawkish signals from the Federal Reserve could weigh on EUR/USD and support Dollar strength against G10 and EM currencies. While the ECB faces dovish risks following weak economic data, the euro's reaction may be muted. The market is closely watching Fed policy adjustments and inflation projections for further direction.