Euro to Dollar Forecast: Powell Boosts EUR/USD, Banks Split on Outlook

Modified: Tuesday, 26 August 2025 09:00 BST - Written by Tim Boyer

STORY LINK Euro to Dollar Forecast: Powell Boosts EUR/USD, Banks Split on Outlook

The Euro to Dollar (EUR/USD) exchange rate forecast has split sharply among major banks, with ING projecting a rally to 1.20 by the end of 2025 and 1.22 in 2026, while Wells Fargo expects a retreat to 1.10 next year.

The divergence comes as the EUR/USD exchange rate surged to 1.1730 on Friday after Fed Chair Jerome Powell struck a dovish tone at Jackson Hole, reinforcing expectations of a September rate cut.

Foreign exchange analysts warn that Fed independence, US politics, and the shifting balance of inflation and labour market risks will be decisive for the US Dollar outlook in the months ahead.

EUR/USD Forecasts: Powell Turns

ING forecasts that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.20 at the end of 2025 with a further move to 1.22 at the end of 2026.

In contrast, Wells Fargo expects that EUR/USD will retreat to 1.10 at the end of next year.

The Euro to Dollar (EUR/USD) exchange rate tested support just below 1.1600 on Friday before surging to around 1.1730 following comments from Fed Chair Powell.

Powell stated that downside risks to the labour market have increased and that the shifting balance of risks may warrant adjusting policy.

Following the comments markets are again pricing in over a 90% chance that rates will be cut in September.

According to ING; “The deterioration in the jobs market is notable, with consumer sentiment even weaker than official data suggests. Our economists now expect the tariff-driven inflation spike to be milder and short-lived. Our new base case is 25bp cuts in September, October and December, followed by 50bp of easing in 2026 and a terminal rate of 3.25%.”

CIBC is not convinced at this stage; “To push our call into September, we would need to see a further deterioration in the labour market. Even then, the Fed might be simply trying to get the political monkey off its back by getting the ball rolling a bit earlier than it wants, and buying time until December for a follow up move when the data picture will be clearer.”

The issue of Fed independence also remains a key market focus.

This week, President Trump called for the resignation of Fed Governor Cook. If she resigned, Trump would effectively control four of the votes on the 7-person committee.

According to MUFG; “It is possible by this time next year that the majority of Fed governors will have been appointed by President Trump including the next Fed Chair giving him more influence on setting monetary policy.

It added; “We continue to view threats to the Fed’s independence as a significant downside risk for the US dollar. President Trump’s desire for lower rates even if not justified by the Fed’s dual mandate poses upside risks to the US inflation outlook and could trigger a loss of confidence in the US dollar and long-term US Treasuries if implemented.”

SocGen also focussed on the longer-term outlook following Powell’s departure next May; “And then we will return to wondering what the FOMC will look like after Jay Powell has ridden off into the sunset. Are independent, inflation targeting central bankers heading into the history books, like the heroes of the Wild West, to be replaced by Stephen Miran and his like, or will they live to fight inflation another day?”

Wells Fargo expects a dollar recovery next year; “In our view, based on our outlook for the Fed, international central banks and economic trends, we are comfortable with the U.S. dollar trending higher over the longer term.”

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TAGS: Euro Dollar Forecasts