Euro to Dollar Forecast for Week Ahead: EUR Pares Gains on USD Rebound

May 26, 2025 - Written by Tim Boyer

STORY LINK Euro to Dollar Forecast for Week Ahead: EUR Pares Gains on USD Rebound

Morgan Stanley expects on-going dollar vulnerability with EUR/USD strengthening to 1.20 at the end of next year and 1.27 by the end of 2026.

BNP Paribas has downgraded its dollar outlook and forecasts that Euro to Dollar exchange rate (EUR/USD) gains to 1.18 by the end of 2025.

Credit Agricole notes the risks, but expects EUR/USD gains will be held to 1.14 with a 1.10 level by the end of next year.

Overall dollar confidence has dipped again with fears over budget trends, trade uncertainty and a rotation of assets away from US markets.

There was fresh market turbulence on Friday following President Trump’s threat to impose 50% tariffs on EU exports to the US from June 1st.

This would be much higher than the baseline tariff of 10% and substantially above the 20% tariff threatened in April.

ING noted that the threat could well be a blatant negotiating tactic to secure concessions from the EU.


ING did, however, warn over the potential impact; “Volatility is back. And just to be sure, if fully implemented, 50% US tariffs on European products would shave off some 0.6ppt of GDP growth and bring the eurozone economy close to recession territory. Needless to say, it would also increase stagflationary pressures in the US again.”

Bank of America commented; “we see US tariffs as bad for Europe, but worse for the US.”

Tellingly, although there would be notable costs to the Euro-Zone economy, the Euro recovered from lows and EUR/USD posted fresh gains to around 1.1365 while the dollar index dipped sharply to 3-week lows.

MUFG outlined another strand of dollar vulnerability; “At the same time, USD weakness has been driven by building speculation that the Trump administration is putting pressure on other countries to allow their currencies to strengthen against the USD as part of deals to prevent higher “reciprocal tariffs” from being implemented after 9th July deadline.”

According to Credit Agricole; “the USD could thus remain vulnerable if we see more evidence of persistent selling pressure in the US equity and FI markets.”

It added; “That being said, many negatives seem to be already in its price and potential indications today that the US PMIs have consolidated could help the USD stabilise. We also think that the US will not abandon its strong USD policy.”

The downgrading of the US credit rating from AAA undermined confidence early in the week and there were also underlying budget fears as the House of Representatives passed the budget Bill.


MUFG commented; “The loss of confidence in the USD and US policymaking reflects increased concerns over the fiscal outlook in the US.”

It added; “While the downgrade should have limited impact in forcing investors to adjust exposure to US Treasuries, it provides another timely reminder of the deteriorating US fiscal outlook which remains a structural headwind for the USD.”

According to Deutsche Bank; “At the core of our views in coming months is that the market is becoming increasingly driven by external asset positions, and this is putting combined downward pressure on US bond markets and the USD.”

Deutsche expects risk assets will be vulnerable; “The 2023-24 period saw a combined rise in US yields and equities as the market was revising US growth expectations higher. Today is very different. It is all a building fiscal risk premium into US assets. It is hard to make the case that such a (negative) driver of the rising cost of capital is positive for risk assets.

A key element, therefore, will be whether the dollar can secure defensive inflows.

According to Morgan Stanley this is doubtful; “The combination of elevated policy uncertainty, increased trade restrictions, and an immigration policy-driven decline in labor force growth leads to an underperformance of USD.”

The Euro-Zone recorded a huge current account surplus for the first quarter of 2025, illustrating structural strength.

BNP Paribas sees scope for capital inflows to the Euro area; “Our analysis suggests that eurozone investors are both overweight and underhedged the USD. As a result, we expect the EUR to be a key beneficiary of a potential switch out of US assets.”

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TAGS: Currency Predictions Euro Dollar Forecasts