Modified: Monday, 12 January 2026 08:01 BST

– Written by


Ben Hughes

STORY LINK Euro-to-Dollar Forecast: EUR/USD Pressured as Markets Reassess Fed Cuts

The Euro to Dollar exchange rate has drifted lower towards the 1.16 area after the dollar secured net gains during the week.

With US data firm enough to dampen expectations of a near-term Federal Reserve rate cut, markets are increasingly focused on whether the Fed will validate or push back against still-dovish pricing for 2026.

That reassessment is set to be the dominant driver for EUR/USD in the near term.

EUR/USD Forecasts: Fed centre stage

Credit Agricole forecasts EUR/USD will retreat to 1.14 by mid-year with a further slide to 1.10 at the end of the year.

After a hesitant short-term performance, ING forecasts that EUR/USD will strengthen to above 1.20.

The dollar secured net gains during the week and EUR/USD retreated to lows just below 1.1620.

There was mixed US data, but the data was strong enough that markets considered that a further Fed rate cut in January was even less likely.

Geo-political developments will remain a key element of major developments at the start of 2026.

According to Credit Agricole, President Trump’s decision to remove Venezuelan President Maduro could prolong the Ukraine war by lessening pressure on Russian President Putin to make a deal.

It noted; “The conflict in Ukraine could remain a huge source of uncertainty and thus a drag on the Eurozone business and consumer confidence in the foreseeable future. We further doubt that the Eurozone would benefit from any sustained drop in energy prices on the back of growing Venezuelan oil exports just yet.”

Market positioning could also be a significant factor

Credit Agricole commented; “We further note that the EUR remains one of the biggest longs in G10 FX according to our FX positioning data.”

ING expects net dollar losses; “A large part of the dollar’s 10% decline was attributed to currency hedging rather than an outright sale of US assets. We think this move could extend a little further in 2026, given our house call for another 50bp of Fed rate cuts and the acceleration of the eurozone economy on the back of German fiscal stimulus. We’re still happy with our call that EUR/USD ends 2026 somewhere around 1.22.”

According to UBS; “With markets currently assigning a low probability to a January rate cut, the risks are tilted toward USD weakness if the data disappoint and increase the likelihood of a cut.”

Credit Agricole expects a reassessment of Fed policy; “Evidence today that the US labour market conditions and consumer confidence are improving while the FOMC remains noncommittal with respect to further policy easing could encourage US rate markets to reassess their still dovish Fed outlook, in a boost to the USD.

MUFG expects dollar losses, especially with a positive Euro outlook.

The bank expects no further rate cuts; “We see the ECB as on hold this year as any miss to the downside for inflation is unlikely to be large and persistent, and GDP growth should reduce the need for additional rate cuts.”

The bank also expects central bank Euro demand; “Assuming dollar reserves continue to decline (our view) we see the euro better positioned to take up a greater role in diversification. It remains the second largest currency in reserves but well below the pre-GCF peak of around 28% and the end negative rates and economic stability could see a return of central banks.”

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TAGS: Euro Dollar Forecasts