July 9, 2025 – Written by Tim Boyer

STORY LINK Euro to Dollar Forecast: Fed Changes to Drive EUR/USD Gains Above 1.20

The Euro to Dollar exchange rate (EUR/USD) dipped to 10-day lows just below 1.1700 on Tuesday before trading just above this level.

Tariff developments will remain a key short-term focus while the issue of Federal Reserve personnel and independence could have huge dollar implications.

UoB sees a significant shift; “The EUR strength from late last month has ended. While there has been no significant increase in downward momentum, the current pullback in EUR could extend to 1.1660.”

On a medium-term view, Danske Bank expects Fed changes will contribute to EUR/USD gains to above 1.20.

The US and EU are continuing trade negotiations with an element of confidence that some form of framework deal will be agreed over the next few days.

The agricultural sector will inevitably be a very contentious element and could trigger a breakdown in negotiations with the US imposing a tariff level.

There would be mixed market implications with damage to the US and Euro-Zone economies.

According to ING; “Tariffs on the EU would mark an important escalation that can also harm the dollar, offsetting the hit on the euro. Anyway, the market’s baseline will probably remain that a EU-US deal should be agreed by the 1 August deadline, and EUR/USD may not drift far from the 1.16-1.18 area unless US data surprise in either direction.”

Uncertainty will still a key market element.

Kyle Rodda, senior financial markets analyst at Capital.com commented; “The delay in the imposition of new tariffs on some of the U.S.’s major trading partners to August 1 has simultaneously kicked the proverbial can down the road and supported the notion that the loftier tariff rates are a negotiating ploy.”

He added; “As a result, the markets have been left hanging, and waiting for a stronger catalyst to drive the next move.”

Ray Attrill, head of FX strategy at the National Australia Bank noted; “The market’s second take on the reciprocal tariff announcements was actually dollar negative on the view that there was as much harm, or more harm, going to be inflicted on the U.S. from these actions as elsewhere.”

He also focussed on uncertainty; “It makes markets reluctant to take a kind of positional view as to how this may play out, given uncertainty still reigns.”

Federal Reserve minutes from the June policy meeting will be released later on Wednesday.

“According to ING; “The consensus expectation is probably that two members, Bowman and Waller, will have flagged their dissent at the meeting before delivering dovish comments to the media a few days later. But if the minutes show a greater dovish front, then the dollar could take a hit as the bar for data to justify a summer cut would be lower.”

Wider Federal Reserve developments could also be a key element for currency markets and the dollar.

President Trump has stepped-up his criticism of Fed Chair Powell and called for him to resign immediately.

There is also evidence that Trump will open up a potential route to get Powell dismissed by accusing him of misleading Congress.

There have also been reports that Administration economic advisor Hassett is a main contender to replace Powell.

Fears over a politicised Fed could cause major dollar damage.

Danske Bank focussed on a potential lack of experience if there are big changes; “the USD historically trades weaker when experience in the Federal Reserve board drops and that will likely happen over the coming year.”

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TAGS: Euro Dollar Forecasts