Euro to Dollar Forecast: EUR/USD Near 1.18 as Fed Uncertainty Dominates

– Written by


Frank Davies

STORY LINK Euro to Dollar Forecast: EUR/USD Near 1.18 as Fed Uncertainty Dominates

The Euro to US Dollar exchange rate (EUR/USD) jumped to two-month highs above 1.1750 after the Federal Reserve delivered a widely expected rate cut but revealed deeper internal divisions.

Markets read the split vote and Powell’s data-dependent tone as a negative for the dollar, keeping the euro supported. Attention now turns to the Fed’s 2026 path and uncertainty over Powell’s successor.

EUR/USD Forecasts: Fed Dominates

Scotiabank forecasts Euro to Dollar (EUR/USD) exchange rate gains to 1.22 by the end of 2026 with a further advance to 1.24 the following year.

SocGen does see scope for EUR/USD gains to 1.20 early next year, but forecasts a steady retreat to 1.14 at the end of 2026.

EUR/USD jumped to 2-month highs above 1.1750 after the Federal Reserve policy decision before consolidating.

The Fed cut interest rates by a further 25 basis points to 3.75% at the latest policy meeting, in line with strong consensus forecasts, but divisions intensified.

There were three dissents against the decision with Schmid and Goolsbee wanting to leave rates on hold while Miran called for a 50 basis-point cut.

Chair Powell emphasised the difficulty in policymaking with higher inflation and weaker employment. He insisted that policy would be data dependent.

According to the latest updates, the median projection is for one further cut in 2026, although there was a wide divergence in forecasts.

Fed policy will remain a key element next year with Chair Powell’s term ending in May and there is a high degree of uncertainty.

Scotiabank commented; “The search for Powell’s successor remains another key risk for the USD, as the current top contender for the role is the dovish-leaning Hassett. Powell’s term (as Chair) officially ends in May, but President Trump has suggested that he could announce his choice as soon as January—setting off a sequence of events that would add significant pressure to the USD into the confirmation and arrival of a new Fed Chair.”

Scotiabank also sees scope for a relatively hawkish ECB stance which would underpin the Euro; “Policymakers had been offering subtle hints over the past few weeks, signaling concerns about upside risks to inflation within the context of an overall balanced outlook.”

Mizuho has an end-2026 EUR/USD forecast of 1.22 and noted; “Fed cuts, German fiscal spending and higher levels of USD FX hedging will lead to a 2017 analogue playing out in 2025/26 but it’s hard to go further than that.”

SocGen also postulated historical comparisons, but does not see a happy ending for the Euro; “There are echoes here of 2020/21 and 2016/17. In both cases, hope that Euro-Zone growth prospects would improve, and monetary policy normalise contrasted with fears that the US economy would suffer a longer-term hangover. In both cases, EUR/USD made it above 1.20, but never got near 1.30 and before long was falling again.”

It added; “over the next few years, unless European economic policy becomes more growth-orientated, a return to the EUR/USD post-2024 average and occasional spikes below 1.10 look depressingly likely.”

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TAGS: Euro Dollar Forecasts