Euro to Dollar FX Forecast: EUR/USD Breaks Above 1.18 Ahead of Fed Decision

Modified: Tuesday, 16 September 2025 22:45 BST - Written by Frank Davies

STORY LINK Euro to Dollar FX Forecast: EUR/USD Breaks Above 1.18 Ahead of Fed Decision

The Euro to Dollar exchange rate (EUR/USD) surged above 1.18 on Tuesday, closing in on the July peak at 1.1830 as traders braced for the Federal Reserve’s policy decision.

Markets expect three rate cuts by year-end, a shift that ING and Scotiabank say could open the door to 1.19 or even 1.20 if resistance breaks.

EUR/USD Forecasts: Pair Tests 1.1830 Resistance

Dollar Dumped on Fed Anticipation, EUR/USD Close to 4-Year Highs

The Euro to Dollar (EUR/USD) exchange rate moved to 11-week highs and traded above this level in US trading despite a brief dip following stronger-than-expected US retail sales data.

Expectations of a narrowing of yield spreads between the dollar and Euro are continuing to support the Euro.

The crucial short-term level is the 1.1830 high seen at the beginning of July and any sustained move above this level would invite talk of further gains.

According to ING; “EUR/USD is pretty close to resistance at 1.1800/1830 now. The most likely trigger for a breakout would be tomorrow night's Fed – but let's see if it happens earlier.”

A lack of significant resistance around 1.1830 would increase chatter of a quick move to 1.20.

According to Scotiabank; “the EUR has broken above the psychologically important 1.18 level, offering little in terms of resistance ahead of the July 1 high at 1.1829.

It added; “We see little in terms of resistance between the July high and the 1.19 level.”

US retail sales data was stronger than expected with a headline increase of 0.6% for August compared with consensus forecasts of a 0.2% gain.

The dollar failed to sustain initial support with the Federal Reserve policy decision and personnel issues dominating market sentiment.

Scotiabank commented; “The outlook for relative central bank policy is front and center as market participants look to the two-day Fed meeting where both Stephen Miran and Lisa Cook will be in attendance.”

Miran was confirmed by the Senate late on Monday while an appeals court rejected President Trump’s attempt to have Governor Cook removed from the central bank.

At this stage, markets expect concerns over the labour market will dominate central bank thinking.

Participants are convinced that frates will be cut on Wednesday and expect three rate cuts by the end of the year.

Pepperstone head of research Chris Weston commented; “there is an increasing view that the Fed is behind the curve and needing to ramp up the urgency to take rates to neutral."

He added; "The weight of capital is moving ever closer to a consensus position that the Fed cut rates not only in the September meeting, but also in October and December, and possibly in January too."

As far as the Euro-Zone is concerned, the German ZEW investor confidence index strengthened to 37.3 for September from 34.7 previously and well above expectations of 25.5, although there was a dip in the current conditions component.

ZEW President Professor Achim Wambach commented; “Financial market experts are cautiously optimistic and the ZEW indicator has stabilised, but the economic situation has worsened. There are still considerable risks, as uncertainty about the US tariff policy and Germany’s ‘autumn of reforms’ continues.”

Importantly, markets remain sceptical that the ECB will cut interest rates again.

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TAGS: Euro Dollar Forecasts