Euro to Dollar Bank Forecast RAISED to 1.23 for Next 12 Months

July 21, 2025 - Written by David Woodsmith

STORY LINK Euro to Dollar Bank Forecast RAISED to 1.23 for Next 12 Months

The Euro to Dollar exchange rate (EUR/USD) is expected to strengthen over the coming year, with UBS raising its 12-month forecast to 1.23 amid shifting rate expectations, political risks for the Fed, and Eurozone fiscal momentum, though short-term volatility remains as markets digest firm US data and tariff threats.

UBS has raised its 12-month Euro to Dollar rate forecast to 1.23 from 1.20 previously.

ING expects EUR/USD will retreat to 1.15 on a 3-month view before a rebound to 1.18 in 12 months.

EUR/USD dipped to 3-week lows around 1.1560 during the week before a recovery to just above 1.1650.

US data releases were also generally firm with markets cutting the potential for a September rate cut to around 40%.

ING commented; “The dominant theme for this quarter we believe will be resurgent US inflation and a Fed resisting heavy political pressure to cut rates. This can deliver some brief respite to the dollar.”

It added; “But expect a lot of interest to buy the dip before EUR/USD rallies again into year-end on a 50bp Fed cut and Powell speculation.”


The dollar briefly slumped following reports that President Trump was poised to sack Fed Chair Powell, but rallied when these reports were denied.

Scotiabank Derek Holt VP & Head of Capital Markets Economics commented; “Personally, I think it’s all just a bunch of performative stunts by the administration.”

Deutsche Bank expects heavy dollar losses if Powell is removed; “we believe the market reaction would be large. It is stating the obvious that investors would likely interpret such an event as a direct affront to Fed independence putting the central bank under extreme institutional duress.”

UBS tied concerns in with unease over the budget deficit; “With US public debt set to rise firmly above 100% of GDP in the coming years, we see room for markets to demand a higher risk premium on US Treasuries. If the Fed provides a helping hand in managing the debt load—i.e., by reducing short-term rates or ramping up its balance sheet again—the USD would likely be hit hard.”

In this context, dollar fundamentals will also be a key element.

According to BNP; “We expect the secular USD downtrend to continue as global investors further reduce their overweight and under-hedged US asset exposure.”

It commented; “Data from European pension funds already highlights a significant increase in hedge ratios, and we suspect that this is a price-sensitive rotation whereby these ratios can rise further as the USD weakens.”


Trade developments will be important as the clock ticks towards the August 1st deadline with Trump threatening to impose 30% tariffs on the EU.

Barclays expects dollar resilience; “In the past few weeks there has been a gradual shift in the market's reaction function, with the dollar now more resilient to tariff escalation news than post-Liberation Day.”

Barclays added; “the absence of widespread retaliation detracts from overt dollar bearishness. Combined with a hefty tariff schedule against the EU in particular and a markedly lower ECB rate path, this would make for a more challenging environment for the EUR.”

Goldman expects there would be renewed dollar selling; “If broad tariff rate hikes are implemented once again, we think the Dollar reaction would be negative again.”

UBS is positive on the Euro due to the election of a new German Chancellor and large fiscal package.

It also notes that the Euro is the most liquid alternative to the dollar while the Euro area has a positive net investment position.

It added; “In our view, all three drivers will remain in place in the coming months and quarters and are likely to push the euro higher against the USD—especially after the recent announcements of more front-loaded spending in Germany.”

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TAGS: Euro Dollar Forecasts