Euro to Dollar Forecast: EUR/USD Gains Capped, 1.20 Still in Sight

Published: Sunday, 14 September 2025 22:00 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: EUR/USD Gains Capped, 1.20 Still in Sight

The Euro to Dollar exchange rate (EUR/USD) edged higher to 1.1750 on Thursday before fading back towards 1.1700 as traders weighed mixed US inflation data against rising expectations of Fed rate cuts.

While the ECB held rates at 2.00% and signalled its cutting cycle is likely over, the Fed’s shift towards prioritising the weak labour market keeps medium-term EUR/USD forecasts pointed higher, with banks still eyeing 1.20.

EUR/USD Forecasts: Tentative Gains Only

The Euro to Dollar (EUR/USD) exchange rate strengthened to near 1.1750 on Thursday before stalling and drifting back towards 1.1700.

UoB commented; “The rebound has scope to extend but given that there has been no significant increase in upward momentum, any advance is likely to be limited to a test of 1.1760. The major resistance at 1.1790 is not expected to come under threat.”

Scotiabank maintains a positive underlying EUR/USD outlook; “We see limited resistance ahead of 1.18 and the July 1 high 1.1829. We look to a near-term range bound between 1.1650 and 1.1750.”

Yield spreads will remain a key element, although political developments will also be monitored closely with Fitch due to announce its French credit rating update late on Friday.


According to Scotiabank; “A credit downgrade may provide additional turbulence for French OATs, however we feel it important to highlight that markets are already pricing considerable credit risk for France as its 10Y yield now trades in tandem with Italy’s.”

ING considers that yield spreads will hurt the dollar; “our model shows that the greenback is expensive relative to the latest short-term rate swings against most of the G10. We expect dollar weakening as the Fed starts cutting, even if now priced in, as cheaper funding costs can further encourage USD selling for hedging purposes.”

The bank still expects medium-term EUR/USD gains to 1.20.

As far as Federal Reserve policy is concerned, there are strong expectations that the central bank will cut interest rates next week and the dollar lost ground on Thursday even though inflation data was mixed.

Rabobank commented; “The market reaction underscores that the Fed’s (perceived) reaction function has shifted from inflation to the labour market. Fed funds futures-implied odds of rate cuts rose, even as the central bank is still somewhat torn between above-target inflation and the cooling jobs market.”

In contrast, there are fresh doubts whether the ECB will sanction further cuts, underpinning Euro yields.

The ECB held interest rates at 2.00% at the latest policy meeting, in line with consensus forecasts.

There was little in the way of formal guidance, but comments from bank President Lagarde were significant.

According to Lagarde, the outlook for the economy is now more balanced and she stated that the process of disinflation had ended.

Following the comments, there were further doubts whether the central bank would cut interest rates again in the current cycle.

According to Danske Bank; “With growth holding up better than expected core inflation above the 2% target due to sticky wage growth, and the outlook for fiscal easing in 2026 we do not expect the ECB to deliver a final cut in the coming six months, contrary to market expectations.”

It added; “We keep our call that the ECB will not make any policy rate changes in 2025 or 2026.”

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