Euro to Dollar Forecast: EURUSD Momentum Faded, FED Ahead

May 5, 2025 - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: EURUSD Momentum Faded, FED Ahead

Currency forecasters at MUFG expect the Euro to Dollar exchange rate (EUR/USD) to strengthen to 1.20 by the first quarter of 2026 amid ongoing dollar losses.

Rabobank, however, sees scope for EUR/USD to retreat to 1.10 on a 3-month view on an easing of trade fears before a recovery to 1.15 in 12 months.

EUR/USD has generally traded in a 1.13-1.14 range during the week with the main feature a strong rebound in equities and improvement in risk appetite.

There was further encouraging US rhetoric surrounding trade, although actual progress was less obvious.

Rabobank sees signs of the US making concessions; “Firstly, the safe haven attraction of US treasuries and the USD are not as gold-plated as had been assumed. Secondly, China’s defiance in the face of the trade war with the US has forced the market to reassess the strengths and vulnerabilities of both sides. As a result, speculation that it might be the US, rather than China, that blinks first has gathered some support.”

It added; “Trump’s hand in driving deals with the US’ trading partners may not be as strong as he had expected. We see scope for EUR/USD to drop back as far as 1.10.”

SocGen’s Kit Juckes is doubtful that its business as usual; “The Trump administration, like others before it in the US and elsewhere, tempers its policies when faced with a nervous Treasury market. But the desire to reorganize the global trading system, and the belief that this can be achieved without hurting the US economy, has deep roots.


He added; “That means that for every time the language from Washington is tempered by market events, the language will re-escalate as the market calms down.”

The question of dollar confidence and the risk of capital outflows remains a key element.

According to Nordea; “The Trump administration has put a serious dent in the long held trust in US foreign relations and institutions, and it is no wonder that we are seeing international investors starting to unwind some of their allocation to US markets. This will go on for a long time in our view, and the risk is that the process could snowball too quickly, leading to an abrupt fall in asset prices, both for US equities and bonds.”

Deutsche Bank is bearish on the US currency; “Our broad takeaway is that the flow evidence so far points to an, at best, very rapid slowing in US capital inflows and, at worst, continued active disinvestment from US assets. Either interpretation we think poses a challenge to the USD as a twin deficit currency.”

The US labour-market data was slightly stronger than expected with an increase in non-farm payrolls of 177,000 for April and unemployment held at 4.2%.

GDP, however, contracted at an annualised rate of 0.3% for the first quarter while consumer confidence dipped further to 5-year lows with the expectations element at a 14-year low.

The Federal Reserve will announce its interest rate decision on Wednesday.


Markets see no real chance of a cut at this meeting while there is a 60% chance of a June move.

Guidance from Chair Powell will be crucial for the dollar, especially given the strong political pressure from the US Administration.

According to ANZ; "Our view is that the FOMC needs time and more data to assess the impact of tariffs on inflation. As long as the labour market holds up, the FOMC will focus on inflation."

ING commented; “With the inflation backdrop limiting what the Fed can do to help in the near term there appears to be little prospect of imminent interest rate cuts.”

The bank, however, expects that there will be a dip in services-sector inflation, especially if there is sustained consumer caution.

It added; “ING When the Fed does come to the rescue at some point in the third quarter we suspect they will move hard and fast and fully understand why markets are now pricing 100bp of interest rates cuts for the year versus 79bp this time last week.”

According to MUFG; “The dollar has weakened sharply in the last two months and hence some consolidation may follow over the short-term. Nonetheless, the stage is set for a further decline of the dollar with a US economic slowdown, Fed rate cuts and doubts over the credibility of US policy making undermining investor confidence.”

Rabobank expects some ECB reservations over Euro strength; “No central bank welcomes excessive volatility, and the surge in the value of the EUR has likely unsettled policymakers. This may have influenced the ECB’s decision to cut interest rates in April and could also have inspired the dovish rhetoric from various policymakers in the following weeks.”

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TAGS: Currency Predictions Euro Dollar Forecasts