Euro to Dollar Forecast: Diverging Rate Paths Tip EUR/USD Higher

Modified: Sunday, 7 September 2025 16:00 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: Diverging Rate Paths Tip EUR/USD Higher

The Euro to Dollar (EUR/USD) exchange rate surged to a five-week high above 1.1750 on Friday after US payrolls showed just 22,000 new jobs in August and June’s data turned negative for the first time in four years.

With markets now fully pricing a September Fed rate cut, and the ECB expected to hold steady, EUR/USD is testing the 1.17–1.18 resistance zone amid speculation the Euro rally could extend into year-end.

EUR/USD Forecasts: 5-Week Highs

The Euro to Dollar (EUR/USD) exchange rate edged towards 1.1700 ahead of Friday’s New York open and jumped to highs at 1.1750 after the latest US data before trading around 1.1730.

The dollar was undermined by another weak headline non-farm payrolls report which included the first negative figure for over four years, although some of the other data was less damaging.

Markets consider a Fed rate cut is inevitable while the ECB is not expected to cut rates further.

According to Scotiabank; “Diverging rate policy between the ECB and Fed should constitute a solid source of support for the EUR in the months ahead.”

It added; “A clear push through the low 1.17 area would be a strongly bullish signal that the EUR rally is resuming.”

A break higher would put the focus on 45-month highs of 1.1830 recorded at the beginning of July.

The latest US labour-market report recorded an increase in non-farm payrolls of 22,000 for August compared with consensus forecasts of around 75,000 while there was a small upward revision for July to 79,000 from 73,000 previously.

There was, however, another downward revision for June with the BLS now reporting a 13,000 declined, the first contraction since late 2020.

Manufacturing jobs have declined 78,000 for the year so far.

The unemployment rate ticked higher to 4.3% from 4.2%, equalling the highest rate since late 2021.

Following the data, markets were extremely confident that rates would be cut this month and are pricing a small possibility of a larger 50-point rate cut.

Peter Cardillo, Chief Market Economist, Spartan Capital Securities commented; “I'm sceptical about this, but it does raise speculation that the Fed could cut by 50 basis points in September.”

Schroders Head of Global Economics David Rees added; “while the odds are now stacked firmly in favour of imminent rate cuts, the Fed will need to tread carefully. After all, most other labour market measures have held up well and changes to immigration policy are likely to restrict the supply of workers in the future.”

Comments from Federal Reserve and Administration officials will be watched closely.

Commerzbank notes that the dollar has still been broadly resilient amid a reluctance to engage in the worst-case scenario. According to the bank; “If the markets were to price in an adverse scenario where, for example, the Fed loses its independence and is forced into excessively loose monetary policy, the consequences could be potentially catastrophic - such as significant currency weakness.

It added; “Few investors are likely willing to bet on such a scenario lightly, as long as hope remains that things won’t get that bad."

The ECB will announce its latest policy decision next week with expectations that the deposit rate will be held at 2.0%

Rabobank commented; “The doves don’t have a solid case for another rate cut, as some hawks are starting to think about the future need for rate hikes already.”

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TAGS: Euro Dollar Forecasts