Euro to Dollar Forecast: EUR Targets 1.20 on USD's "Building Downside Risks"

Modified: Monday, 8 September 2025 09:00 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: EUR Targets 1.20 on USD's "Building Downside Risks"

The Euro to Dollar (EUR/USD) outlook strengthened last week as weak US jobs data made a September Fed rate cut a near certainty, lifting the pair above 1.1750.

Markets see scope for further Euro gains, with Rabobank targeting 1.20 and MUFG forecasting 1.25 by mid-2026, as policy divergence between the Fed and ECB drives Dollar weakness.

EUR/USD Forecasts: September Fed Rate Cut a Slam Dunk

Rabobank forecasts gradual Euro to Dollar (EUR/USD) exchange rate gains; “We continue to target a move to EUR/USD1.20 but expect this to roughly coincide with the end of Powell’s term as Fed Chair in the spring of next year.”

MUFG is more bullish and expects 1.25 by the second quarter of 2026.

The Euro managed to hold a firm tone despite ongoing reservations surrounding the forthcoming French government confidence vote, while the dollar was hurt by another weaker-than-expected jobs report, and EUR/USD strengthened to just above 1.1750.

US non-farm payrolls increased 22,000 for August compared with consensus forecasts of around 75,000.

There was a small upgrade for July, but the June figure was revised down again to show a decline of 13,000, the first contraction for over 4 years.

Markets are pricing in a 100% chance that rates will be cut this month with a 10% chance of a 50 basis-point cut.

ING commented; “Another soft jobs report is intensifying calls for meaningful Federal Reserve interest rate cuts. Consumers are already worried about squeezed spending power from tariffs and are now increasingly concerned about job security. Fed doves will intensify their calls for action.”

Fears over Fed independence have also sapped dollar support.

MUFG noted; “we revised down our forecasts for the USD to better reflects building downside risks from the Trump administrations’ ongoing efforts to exert more influence on Fed policy.”

Rabobank commented; “Whether Cook is guilty or not, there are clear political incentives for Trump to fire her. As it stands, Trump has two Governors, Waller and Bowman, ready and willing to vouch for cuts if it means it will get them on the short list for Fed Chair. Meanwhile, Stephen Miran is on deck to replace Kugler, who stepped down shortly after the July FOMC decision,”

It added; “If Trump can stack the Fed with another pick of his own to replace Cook and pull in a sympathetic outsider to act as Fed Chair when Powell steps down, Trump would achieve a 5-2 majority on the Board in 2026.”

Credit Agricole is still cautious over selling the dollar at this stage; “We think it will be more difficult for the Fed to turn even more dovish given still persistent risks to inflation. Additionally, given the escalation of political risks in France, the EUR is likely to find it more difficult to gain ground, curbing USD downside. The main risk will be Trump’s attacks on Fed independence, though we think that many Fed-related negatives are already in the USD.”

ABN Amro considers that the ECB will reject further rate cuts. It also played down risks associated with the French bond market.

According to the bank; “In our view, market moves to date are not even close to levels that would trigger any kind of response from the ECB, either in terms of outright yields generally, or for instance France’s spread over Germany."

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TAGS: Euro Dollar Forecasts