Euro to Dollar Forecast: Bank Targets EUR/USD at 1.25 as Fed Risks Mount

Modified: Sunday, 31 August 2025 22:00 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: Bank Targets EUR/USD at 1.25 as Fed Risks Mount

The Euro to Dollar (EUR/USD) exchange rate forecast is back in focus after the pair gained ground last week but stalled just above 1.1700.

ANZ expects EUR/USD to climb to 1.25 by the first quarter of 2027, citing tariff uncertainty, weaker US growth and Federal Reserve easing as drivers of sustained dollar weakness. Other banks are more cautious, with HSBC projecting a near-term range of 1.15–1.18 as investors weigh competing forces.

Markets remain fixated on the Federal Reserve, with political pressure and legal risks dominating sentiment. A court hearing on Fed Governor Lisa Cook’s dismissal was held Friday, while an appeals court ruled Trump’s reciprocal tariffs unconstitutional. Both cases are headed to the Supreme Court, leaving Fed independence in the spotlight.

Unicredit warned; “If the takeover of the Fed succeeds in February, markets should get ready for an abruptly dovish shift in monetary policy, although Trump is unlikely to get all the rate cuts he desires unless the economic outlook deteriorates.”

Standard Chartered added; “Efforts to pack the Fed’s decision-making committee with members seen willing to drastically cut rates (as Trump has demanded) could potentially raise inflation expectations, upend bond markets, steepen the yield curve further, undermine confidence in the dollar and lift gold.”

ANZ also highlighted tariff concerns; “Trade uncertainty has impacted US consumer and business expectations, resulting in a slowing in US activity and a softer labour market. This has affirmed our view of a 25bp Fed rate cut in September. The tariff impact on US inflation and consumption will materialise in the coming months and weigh on the USD.”

UBS also sees medium-term dollar weakness; “Looking ahead, we anticipate further dollar losses as the US economy slows and the focus on the country’s fiscal deficit expands. We see EUR/USD rising to 1.23 by September 2026.”

BNP Paribas stressed the political backdrop; “Central bank independence cannot exist in a vacuum. Unless there is a broad political and societal consensus in its favour, it is bound to wither.”

It added; “This context puts the balance of risk in a wholly different perspective: defuse political pressure on Fed independence by showing open-mindedness to a shift in monetary policy stance, at a limited risk to the Fed’s inflation-fighting credibility, or risk unleashing the destruction of the whole institutional framework that underpins it.”

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TAGS: Euro Dollar Forecasts