– Written by


David Woodsmith

STORY LINK Euro to Dollar Forecast: September Fed Hike Could Decide USD Outlook

The Euro to Dollar exchange rate (EUR/USD) held close to 1.1600 last week despite another surge in US Treasury yields, with markets now focused squarely on Federal Reserve Chair Kevin Warsh and this week’s crucial policy decision.

A September rate hike is increasingly expected, but the bigger question for the Dollar is whether the Fed can ultimately deliver the tightening cycle already priced into markets.

EUR/USD Forecasts: Big Call for Feds Warsh

SEB expects the dollar to hold steady in the short term and potentially advance slightly over the remainder of 2026, but the bank expects the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.23 by the end of 2027.

Goldman Sachs, however, has a 12-month EUR/USD forecast of 1.12.

The main feature during the week was a slide in US Treasuries with the 10-year yield jumping to near 5.00% and the highest level for over three years. Higher energy prices contributed to the fears with Brent hitting 4-month highs above $100 p/b.

Despite this volatility, EUR/USD was held in relatively tight ranges and settled close to 1.16.

The headline US inflation rate held at 3.4% for August with the core rate edging lower to 2.4% from 2.5% and in line with consensus forecasts.

Markets are now pricing in close to a 70% chance that the Federal Reserve will raise interest rates at this week’s meeting.

ING commented; “It is a close call, but after Kevin Warsh’s hawkish speech at Jackson Hole, we now see a 25bp Fed hike to 4.00% on 16 September.”

Markets also consider that the most likely outcome is three rate increases by March 2027.

According to SEB; “Rates have continued to rise during the summer and a sticky inflation scenario for the Fed now looks reflected in pricing. A question is if the Fed will be able to meet expectations – it is not obvious to us. Meanwhile Scott Bessent has begun a more activist approach via Yen intervention and increasing treasury buybacks, both having a negative Dollar impact.”

It added; “This is happening with a backdrop where the global positioning in the Dollar has only increased (via lower FX hedge ratios). Thus, the outlook would seem to be skewed towards Dollar weakness, triggered by an eventual global disinflation impulse (Hormuz reopening) – this is looking like a story for 2027 though.”

SEB did note Euro-Zone reservations; “French budget/election is a risk, but bias is that Euro can climb this wall of worry by avoiding the most negative market outcome.”

The ECB raised rates by 25 basis points at the latest policy meeting with the deposit rate hiked to 2.50%. There were also hints that a further increase is possible before year-end.

Euro-Zone energy prices continued to increase with natural gas prices at fresh 3-year highs.

Goldman Sachs commented; “On net, we see moderate risks of energy-driven EUR under-performance ahead.”

Like this piece? Please share with your friends and colleagues:

International Money Transfer? Ask our resident FX expert a money transfer question or try John’s new, free, no-obligation personal service! ,where he helps every step of the way,
ensuring you get the best exchange rates on your currency requirements.

TAGS: Euro Dollar Forecasts

The GBPJPY pair provided more negative closes by moving away from 210.40 barrier, forming bearish waves by its stability below 208.10 level, announcing its readiness to resume the previously suggested negative trend.

Gathering extra negative momentum makes us expect reaching 206.70 level, where surpassing it will open the way for targeting more negative stations, to reach 205.90 and 205.10.

The expected trading range for today is between 206.70 and 208.70

Trend forecast: Bearish

The EURJPY pair confirmed its readiness to resume the main bearish trend by providing a negative close again below the main barrier at 180.80 level, reaching 177.85 in Friday, achieving the previously awaited initial target.

The continuation of providing negative momentum by the main indicators will increase the efficiency of the negative trend, which might target new negative stations that begin at 177.35 reaching the next support near 176.70.

The expected trading range for today is between 177.35 and 178.60

Trend forecast: Bearish

Focus for the Euro is what occurs post the recent European Central Bank (ECB) decision. The ECB chose to increase interest rates by 25 basis points for the second time in 2022. Renewed increases in inflation, driven by rising energy prices, has policymakers focused on good policymaking. EUR/USD initially sold off on the news as investors digested the growing income risks against slowing economic conditions. Speeches from President Lagarde and many of her colleagues are due at various points today, market participants should closely follow these speeches for update on future policy decisions.

For sterling, the main event this Thursday is the Bank of England meeting. About 75% of participants expect the BoE to stand pat. In the absence of any blow-up Middle East conflict, we’ll see increased re-invigoration in demand for higher yielding assets. However, ruptures to Middle East Oil continue to grow and will further increase oil prices. Increased oil prices will lead to inflation in the UK, narrowing policy divergences between the BoE, Fed and ECB.

Fundamental bias: DXY moderately bullish, EUR neutral, GBP neutral, with this week’s Fed and BoE decisions likely to determine the next major policy divergence.

U.S. Dollar Index Technical Analysis: DXY Breaks Above $99.26 as $99.39 Comes Into Focus

But a 25 basis point increase may already be priced in. Therefore, USD/JPY could decline more sharply if Ueda talks at the next couple of meetings about another hike or if he indicates that rates might be raised beyond 1.75%. A dovish press conference might have the opposite effect and move USD/JPY higher.

On the other hand, the expectation of a 25 basis point Fed rate hike in September has increased by 87% after the US inflation data. If both central banks raise rates by 25 basis points, the interest rate gap would remain broadly unchanged.

This could limit the immediate gains in yen. The move in USD/JPY would then depend mainly on which central bank signals a faster pace of future tightening.

USD/JPY Forecast: 152 Support in Focus After Break Below 159

USD/JPY remains under extreme pressure in the short term after failing at the long-term resistance zone of 160-162. The pair produced a high of 163.98 on July 20 but failed to hold it and dropped sharply. This drop indicates that the pair is moving toward the 150 area in the short term to find the next support.

This support is defined by the ascending channel pattern that stretches from the January 2023 lows. If this support holds and bottom forms around 150, it will likely initiate another rally toward 160-162.

The formation of bottoms in December 2023, September 2024 and April 2025 suggests positive price action in USD/JPY. Therefore, a confirmed break above the 162 level will likely open the way to higher levels, possibly reaching 175.