Euro to Dollar Forecast: Fed Triggers EUR/USD Spike Before Sharp Reversal

Published: Friday, 19 September 2025 08:30 BST - Written by Ben Hughes

STORY LINK Euro to Dollar Forecast: Fed Triggers EUR/USD Spike Before Sharp Reversal

The Federal Reserve delivered a widely expected 25bp rate cut on Wednesday and signalled more easing ahead, but the dollar staged an impressive recovery from three-year lows.

The Euro to Dollar exchange rate (EUR/USD) briefly spiked above 1.1900 to hit fresh four-year highs before reversing sharply lower as US yields rebounded.

EUR/USD Forecasts: Euro Spikes Then Retreats

EUR/USD dipped to 1.1780 in early Europe on Thursday before clawing back to 1.1830.

ING noted;

“We suspect this reversal had more to do with positioning rather than a less dovish re-assessment of today’s communication from the Fed.”

UoB commented;

“Shorter-term upward momentum is starting to fade, but overall, as long as 1.1760 holds, there is still a chance, albeit not a high one, for EUR to rise toward 1.1955. Today, we expect EUR to trade in a range between 1.1785 and 1.1865.”

Despite the pullback, many banks continue to forecast medium-term EUR/USD gains to 1.20.

The Fed cut rates to 4.25% in an 11–1 vote, with new governor Steve Miran dissenting in favour of a 50bp move. Bowman and Waller, who had opposed easing in July, supported the smaller cut this time.

The updated dot plot showed a median projection of two more cuts in 2025, though only a slim majority backed that view, with six policymakers seeing no further easing this year. The median also pencilled in two more cuts in 2026.

Chair Powell defended the decision as “insurance” against labour market weakness, stressing;
“Recent indicators suggest that economic activity has continued to expand at a solid pace, but job gains have slowed and the unemployment rate has moved up somewhat.”

Powell also admitted the Fed faced “an uncomfortable balance” as inflation remains above target even as the jobs market softens.

Westpac’s Elliot Clarke highlighted the uncertainty;

“The revised forecasts highlighted the degree of uncertainty that remains over the outlook.”

Rabobank said;

“We now forecast another 25bp cut at the October 29 meeting and still see a terminal Fed Funds rate of 3.00%. The risk to our view is skewed to two more cuts this year over none, due to the rapidly deteriorating state of the U.S. labour market.”

ING added;

“A Fed formally shifting the risk on its dual mandate to the downside because of a softer jobs market and the expectation of two further rate cuts this year and a path to 3.00–3.25% for the policy rate do not look particularly dollar positive for us. And when the dust settles over coming days, we suspect the dollar could drift back to the lows of the year and now will prove hyper-sensitive to US labour market data.”

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TAGS: Euro Dollar Forecasts