Euro to Dollar Exchange Rate Forecast: Trump V Fed

Published: Monday, 28 July 2025 09:30 BST - Written by Tim Boyer

STORY LINK Euro to Dollar Exchange Rate Forecast: Trump V Fed

Danske Bank forecasts that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.23 on a 12-month view on Euro-Zone capital inflows and a weaker dollar.

HSBC expects EUR/USD will be blocked at 1.20 with the risk that anti-dollar sentiment is extreme.

Rabobank has a 9-month EUR/USD forecast of 1.20, but is also reluctant to push forecasts beyond this level.

EUR/USD strengthened to near 1.18 during the week and close to 45-month highs before a retreat to 1.1730.

The immediate focus will be on EU-US trade talks with negotiators in frantic talks.

The Euro has scope for limited gains if there is a deal while no deal could trigger some limited Euro losses.

According to Danske Bank, there is scope for near-term volatility, but added; “we still think the cross is in for a trajectory-trend higher aided by relative rates, a European asset market continuing its rebound and the reduced global need for contractionary monetary conditions.”


It added; “Also, the gradual adjustment of hedge ratios on USD assets as well as reduced confidence in US institutions are likely to remain tailwinds for the cross.”

There are strong expectations that the Federal Reserve will leave rates at 4.50% this week.

Fed policy will remain a key element, especially with persistent criticism from President Trump and the Administration.

Trump appears to have drawn back from an immediate sacking of Fed Chair Powell, but there has been further speculation that Trump will use construction overruns on the Fed renovation as a pretext to remove Powell.

There are also expectations that Trump will look to weight the Fed committee in his favour.

Investment banks have considered whether extreme measures could be taken.

Rabobank commented; “we do not expect that the Fed will fully lose its independence, because then our new forecasts would go much lower. However, the inclination to cut in 2026 will be higher than we previously thought when we assumed that the Fed would be able to keep monetary policy free from Trump’s influence. Now that Waller and Bowman have “turned”, this is no longer our base scenario.”


The bank mooted an extreme option; “Trump could bypass questions of whether he has the legal authority to fire Powell and ‘do an Andrew Jackson’ by abolishing the central bank altogether.”

HSBC warned against getting carried away; “The USD narrative has been negative, while some drivers that should be positive for the currency have not worked. ‘Bubbly-like’ characteristics exist, which is a warning sign that a USD bottom may not be far away.”

The bank added; “EUR-USD trades considerably higher compared with the level implied by interest rate differentials. If EUR-USD is to sustain a move higher, we believe it must also be driven by strengthening eurozone fundamentals. Although there are some positive signs, we think more is needed to shift the dial. EUR-USD has benefited from US failings but what got it here will not get it there.”

The ECB held interest rates at the latest meeting with the deposit rate at 2.00%.

According to ING; “the bar for yet another rate cut this year has clearly been raised. Still, we think that actual inflation could come in lower than the ECB expects and hard macro data could rather disappoint over the summer. This, together with the fact that the ECB’s June projections actually included a terminal rate of 1.75%, still encourages us to see one final rate cut at the September meeting. But our conviction has become weaker.”

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TAGS: Euro Dollar Forecasts