Euro to Dollar Forecast: "We Favour EUR/USD Exploring the Upside"

May 20, 2025 - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: "We Favour EUR/USD Exploring the Upside"

The Euro to Dollar (EUR/USD) exchange rate peaked just below 1.1280 on Tuesday and retreated to 1.1230 as the dollar managed to secure a limited recovery.

ING commented; “We slightly favour EUR/USD exploring the upside in quiet markets. A move through the 1.1265/1300 area can open up 1.1380.”

So Far, EUR/USD has not been able to break this area.

Scotiabank expects further net range trading; Near-term support is expected at 1.1150 with resistance expected above 1.1350.”

The immediate focus is likely to be on US fiscal policy with President Trump in Washington and attempting to secure Republican support in Congress for the Budget Bill.

Markets remain wary over the risk of a further widening of the US budget deficit, especially with longer-term debt fears.

MUFG commented; “Since the start of 2022, foreign private investor demand for UST bonds has been unprecedented. But if that demand was to wane and central bank selling was to continue we would certainly expect the euro-zone to take on a greater role as an alternative destination.”


Scotiabank remains wary over dollar fundamentals; “Trade uncertainty remains high and while last week’s US sovereign credit downgrade can hardly have come as a surprise to market, investors cannot be complacent amid signs that the US economic momentum may be slowing amid the fallout from President Trump’s tariff policy.”

It added; “If anything, the fall back from last week’s peak suggests the rebound is poised to fade and reverse to the downside.”

The dollar is still struggling to gain any defensive support.

Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management, commented; "That's really what gave people a jolt and say, well, if the dollar is no longer acting as a safe-haven currency, if it's not diversifying us any longer, should we really be holding this much of it?'"

The Euro-Zone recorded a seasonally-adjusted current account surplus of EUR51bn for March from EUR41bn the previous month and EUR30bn last year.

In the 12 months to March the surplus widened to EUR438bn and 2.9% of GDP from EUR312bn and 2.1% the previous year.

The substantial Euro-area current account surplus in in sharp contrast to the US deficits, increasing the potential for defensive capital flows into the Euro area rather than the dollar.


MUFG commented; “while we are very sceptical of the view of the dollar losing its reserve status, that does not preclude the potential for dollar holdings to gradually decline further and we see EUR as best placed to take on a greater reserve currency status role.”

MUFG added; “An unusually wide gap has opened up between short-term yield spreads and the USD. It could be an indication that market participants have priced in a higher policy risk premium into USD and/or a larger than normal position adjustment has taken place.”

Commerzbank Head of FX and Commodity Research Ulrich Leuchtmann is still worried over overt or more indirect threats to Fed independence; “The Fed has now announced that it will cut 10% of its staff in anticipatory obedience. Does that reassure me? On the contrary! The Fed has shown itself to be responsive to political pressure."

He added; "In the worst-case scenario, we could end up with a Fed that has shrunk so much that it is de facto incapable of acting. Very much like USAID. This is another way in which central bank independence can be abolished."

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TAGS: Euro Dollar Forecasts