Euro to Dollar Forecast: Banks Bullish on EUR/USD as Fed Cuts Near

Modified: Monday, 15 September 2025 11:00 BST - Written by Ben Hughes

STORY LINK Euro to Dollar Forecast: Banks Bullish on EUR/USD as Fed Cuts Near

The Euro to Dollar exchange rate (EUR/USD) outlook improved last week as markets looked to Federal Reserve Chair Jerome Powell for direction.

Euro investors are betting on a September rate cut, with ING targeting EUR/USD gains to 1.20 and UBS forecasting 1.23 within 12 months.

The ECB has signalled its own cutting cycle is over, leaving Fed policy as the key driver.

EUR/USD Forecasts: Banks Back Euro Gains

ING continues to forecast that the Euro to Dollar (EUR/USD) exchange rate will strengthen to at least 1.20 and UBS expects 12-month gains to 1.23.

Standard Chartered sees a bullish EUR/USD bias, but is not at this stage backing a move through 1.1830.

EUR/USD secured a marginal gain to 1.1725 during the week.

There are strong expectations that the Federal Reserve will cut interest rates this week.

Morgan Stanley commented; "The Fed now has four months of evidence of a slowdown in labor demand that appears more persistent in nature. In short, ignore where inflation is today and ease policy to support the labor market."

It added; "We think a 25bp rate cut in September is more likely than a larger cut."

Standard Chartered added: “We expect the Fed to cut by 25bps next week and 50bps more by year end as the US job market slows.”

According to ING; “Lower US rates will make it cheaper to hedge dollar assets. From around 2.2% per annum today, it looks like three-month dollar hedging costs for a euro area investor will drop to around the 1.00% area over the next six to nine months.

It added; “That is generally consistent with a higher EUR/USD and returns to that theme which hit the dollar in the second quarter – namely, investors in US assets raising hedge ratios without necessarily selling the underlying asset.”

Administration attempts to gain greater control of the Federal Reserve also remain a key element

This week a lower court blocked the firing of Fed Governor Cook, but Trump has appealed against the decision and wants an early ruling.

CEO head Miran, who has been nominated to fill another vacancy for Governor was a vote in the Senate Banking Committee and the Administration wants a full Senate vote on Monday which could allow Miran to vote at this week’s policy meeting.

Danske Bank notes that inflation concerns could shift market expectations; “While markets remain squarely focused on labour market data, inflationary pressures should not be overlooked - at some point this could force a recalibration of rate-cut expectations, which we think could materialise in the coming months. This in turn could trigger a short-term USD comeback.”

The ECB left interest rates on hold at 2.0%, in line with expectations. Bank President Lagarde was more confident over the economic outlook and commented that the process of disinflation had ended. In response, there was a shift in expectations.

Rabobank commented; “We were already of the view that the ECB will not cut rates below 2% this cycle. The market is increasingly of that view too.”

Markets continued to fret over the French budget outlook following President Macron’s appointment of a new Prime Minister to replace the Bayrou.

HSBC does not expect Euro damage; “For now, the risk of contagion to other Eurozone members is lower. Italy, Spain and Greece are all in better economic shape this time around, while Germany has unveiled a multi-year fiscal stimulus programme. Fed policy remains the main driver for EUR-USD moves.”

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TAGS: Euro Dollar Forecasts