June 15, 2025 – Written by Frank Davies

STORY LINK Euro to Dollar Forecast: 1.16 by 2026, 1.20 by 2027 say Investment Bank

Commerzbank forecasts that the Euro to Dollar exchange rate (EUR/USD) will advance to 1.16 at the end of this year and 1.20 by the end of 2026.

Morgan Stanley expects stronger EUR/USD gains to 1.25 by the second quarter of 2026.

The dollar was subjected to renewed selling during the week with the currency index sliding to the lowest level since February 2022. In this environment, EUR/USD surged to 43-month highs above 1.16.

The US currency did secure a reprieve late in the week as risk appetite dipped and oil prices surged after Israel attacked Iran’s nuclear facilities. EUR/USD retreated to near 1.15, but with strong buying on dips.

ING expects caution will prevail initially; “The key difference from previous Israel-Iran standoffs is that nuclear facilities have now been targeted, and while oil production does not seem to be affected just yet, markets have to add in a bigger risk premium given the crucial role of Iran in global oil supply.”

The latest US inflation data was weaker than expected with core consumer prices increasing 0.1% in May with the year-on-year increase held at 2.8%.

Markets remain confident that the Federal Reserve will not cut interest rates at this week’s meeting, but with greater confidence in significant cuts later in the year.

According to Commerzbank; “While it is unlikely that Trump will dismiss Fed Chair Powell before the end of his term, he may nominate a Fed chairman more in line with his views next year.”

Markets are still fretting over the impact of tariffs and tensions will increase during the reminder of June.

Aviva Investors senior economist Vasileios Gkionakis noted the structural concerns as investors fret about persistent fiscal deficits, weakening foreign demand for government debt, and institutional uncertainty.

He added; “The US has been enjoying a significant privilege for decades. This is now shifting, with the US likely to run large fiscal deficits for years and against a backdrop of an extended net international investment position.”

ABN looked at multiple risks contained in the proposed Budget Bill.

According to the bank; “The overall impact on the economy would not be favorable, and the repercussions for financial markets could be significantly worse. This reputational damage has arguably been a major factor driving the dollar’s devaluation in recent months.”

Morgan Stanley commented; “We think that this weakening trend continues, and we now forecast the DXY to fall an additional 9% over the next 12 months to 91, with USD weakness most pronounced against its safe-haven peers – EUR, JPY, and CHF.”

Investment banks also see scope for further inflows into the Euro area.

BNP Paribas has calculated that if Dutch and Danish pension funds reduce dollar exposure to 2015 levels as a share of total assets under management, they have a further $217 billion to sell.

HSBC added; “Dutch pension funds are the largest in the EU and their investment behaviour often indicates broader European investment flows. If European investors continue to increase FX hedge ratios, it will likely provide further support to EUR-USD.”

BNP also agrees that ECB policy is close to turning and is positive on the Euro; “Our analysis suggests there is much more still to come.” It maintains a EUR/USD target of $1.20.

Commerzbank noted; “our economists expect the German fiscal package to provide a significant boost in the coming year. After many years of struggling, this should encourage investors to take a closer look at the euro area again, which should benefit the euro.”

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TAGS: Currency Predictions Euro Dollar Forecasts