Euro to Dollar Forecast: EUR Hits 4-Year Highs Before Fed Sparks USD Rally

Published: Wednesday, 17 September 2025 23:00 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: EUR Hits 4-Year Highs Before Fed Sparks USD Rally

The Euro to Dollar (EUR/USD) briefly surged to 1.1880, its strongest level in four years, before fading after the Federal Reserve cut rates by 25bp and signalled three more reductions this year.

The initial reaction sent the dollar down by around 0.5%, but US yields quickly reversed higher and the greenback clawed back losses, leaving EUR/USD back near 1.1845.

ING says the reversal reflected positioning rather than a shift in the Fed’s message, underscoring that this is “a trader’s market.”

Fed delivers 25bp cut, signals more to come

The Federal Reserve lowered its policy rate by 25bp as expected and indicated three further cuts in 2025 to boost growth and revive the labour market.

ING commented;

“The Fed cut the policy rate 25bp as expected. They think three more cuts will be enough to boost growth and prompt a revival in the jobs market, but the market is sceptical. We look for four more 25bp cuts before trade clarity, a weaker dollar and lower borrowing costs start to stabilise the situation.”

The market’s initial response was sharp, with the dollar sold off aggressively across the board.

ING analysts added;

“Dollar bears went into this meeting a little nervous that the Fed wouldn’t deliver for them. In the end, the Fed delivered on expectations of three cuts this year and the first reaction for the dollar was to fall across the board by around 0.5%."

"Within about 30 minutes, however, the dollar had more than recouped its losses as US yields reversed higher. We suspect this reversal had more to do with positioning rather than a less dovish re-assessment of today’s communication from the Fed. A trader’s market.”

The Euro had entered the Fed meeting on a strong footing, breaking out of a 10-week range as inflows drove EUR/USD to 1.1880. Analysts said momentum looked hard to resist.

ING noted;

“EUR/USD has broken to the topside of a 10-week trading range, and it looks hard to resist the move. Seasonality now builds against the dollar – especially in November and into December – and 1.1910 looks like the final resistance level before 1.20 is hit.”

UoB added;

“While the sharp rally appears excessive, strong momentum continues to suggest a higher EUR today. That said, it remains to be seen if EUR can break above the next resistance at 1.1915.”

HSBC maintains a year-end target of 1.20 for EUR/USD.

EUR/USD: Risks and positioning

Not all analysts expect a straight path higher. Danske Bank said;

“With EUR/USD rallying sharply in recent sessions and 25bp cuts already almost fully priced for the remainder of the year, we would be surprised to see the cross extend materially higher post-FOMC. While we remain strategically bullish on EUR/USD over the medium term, near-term risks look more balanced.”

It added;

“EUR/USD could come under pressure if the Fed signals a preference for quarterly rather than sequential cuts. In our view, the bar for a dovish surprise is high, given current market pricing and inflation still running above target.”

IG’s Tony Sycamore said any dollar rebound could prove temporary;

“In light of that, we believe any ‘buy the rumour, sell the fact’ reaction will be short-lived, given the possibility of follow-up 25 bp rate cuts in October and December.”

HSBC concluded;

“One could argue that this likely policy divergence between the Fed and the ECB is already priced into the market. But it is difficult to sell EUR/USD when there is still a lively debate around how much and how quickly the Fed might ease while there is little debate about whether the ECB may need to act.”

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TAGS: Euro Dollar Forecasts