Test 1 - Fed hike risk lingers, but institutional banks see capped upside for the US Dollar

Institutional banks broadly see the US dollar’s near-term upside as constrained, even though additional Federal Reserve rate hikes remain possible. While MUFG/BTMU and Commerzbank highlight lingering prospects for a December hike and potentially one more move thereafter, ING and Commerzbank emphasize that softer dollar momentum, positioning adjustments and the nature of the Fed’s communication will likely keep the currency from gaining significant ground, with risks skewed modestly toward a gradual dollar decline rather than a sharp move in either direction.

MUFG/BTMU: Residual hike risk supports the dollar but caps near-term momentum

MUFG/BTMU underscores that the Fed is still expected “to hike rates one more time this year in December” and that “another back-to-back hike this month” cannot be fully ruled out after stronger September inflation. At the same time, they note that the “scaling back of October Fed rate hike expectations has helped to dampen the US dollar’s upward momentum in the near-term although further hikes remain likely.” Their view implies that while residual tightening risk provides underlying support for the dollar, the reassessment of near-term hike timing is limiting the currency’s ability to extend its recent gains.

"MUFG/BTMU: We still expect the Fed to hike rates one more time this year in December and can’t completely rule out the probability of another back-to-back hike this month after the stronger US inflation data for September."

ING: Soft dollar tone and positioning unwind point to orderly, gradual downside

ING observes that “the dollar continues to trade with a soft undertone,” linking this to aftereffects of AI-related concerns and the unwinding of “stretched longs/ short-term overvaluations.” They add that the softer backdrop has shifted risks “somewhat further in a USD-bearish direction,” yet they “continue to favour a gradual and orderly dollar decline rather than a sharper depreciation,” with the broader Fed, oil and rates narrative still seen as supportive. ING’s stance suggests that while the dollar is no longer heavily overvalued on their metrics, the prevailing environment favors a controlled, incremental weakening rather than abrupt volatility.

"MUFG/BTMU: The scaling back of October Fed rate hike expectations has helped to dampen the US dollar’s upward momentum in the near-term although further hikes remain likely."

Commerzbank: Market prices a December hike, but sees limited scope for dollar strength

Commerzbank notes that “for October - that is, next week - a rate hike by the Fed is generally no longer expected,” with a December hike “already priced in” and markets still assigning “a chance that another hike could come by the middle of next year.” Their experts, however, “do not foresee any further hikes after December.” They argue that if the Fed delivers a “hawkish pause next week, the dollar could gain some ground, at least in the short term,” whereas “any deviation from a restrictive stance… is likely to put the dollar under pressure.” Summing up, Commerzbank concludes that “in the short term, I see little reason for the dollar to gain significant ground,” indicating that even with a December hike priced, the balance of expectations limits meaningful upside for the currency.

"ING: The dollar continues to trade with a soft undertone. That, to us, is a mix of some aftereffects of AI-related concerns (Corewave bonds had another wobble yesterday) and stretched longs/ short-term overvaluations being unwound. That said, the dollar no longer looks particularly stretched on our short-term valuation metrics."

The takeaway