A near-1% weekly fall leaves the Euro exposed to further Dollar gains, although both banks see ECB tightening limiting the decline.

The Euro to US Dollar exchange rate (EUR/USD) finished Friday near 1.1486, almost 1% lower over the week, with ING warning of a possible test of 1.1400.

Crédit Agricole’s December forecast is lower at 1.13, extending to March 2027 before a gradual recovery later that year.

Wednesday’s Fed-driven fall below 1.15 accounted for much of the weekly decline.

The Federal Reserve raised rates by 25 basis points to 3.75%-4.00%, while its 4.1% median projection for end-2026 implies another quarter-point increase.

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ECB tightening could slow the Euro’s decline

ING sees scope for higher short-term US yields to support the Dollar, particularly if incoming data and energy prices encourage markets to price an October hike.

However, it also highlights hawkish ECB commentary as a reason for caution:

“This is one reason not to chase EUR/USD lower too aggressively from current levels.”

Its 1.1400 view is a near-term downside risk, with Friday’s assessment also allowing for stabilisation.

Crédit Agricole shares that qualified bearish stance:

“We are moderately bearish on EUR/USD from current levels because we expect additional ECB tightening to limit the downside risks to a degree in the coming months.”

The bank argues that expensive energy, weaker international competitiveness and renewed sovereign credit concerns weigh on European assets, even with the economy proving resilient.

It forecasts 1.14 in June 2027, 1.16 in September and 1.17 in December, following its December 2026 and March 2027 forecasts of 1.13.

The immediate test is whether cheaper oil can loosen the Dollar’s grip before those longer-term recovery forecasts come into view.

ING noted on Friday that cheaper oil had slowed the Dollar’s post-Fed advance, but doubted that prospective talks between President Trump and Gulf leaders would deliver sufficient relief:

“Even so, we do not see these developments as enough to take Brent back below $100/bbl at this stage.”

Exchange Rates UK Research

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