Euro to Dollar Week Ahead Forecast: Analysts Warn of 1.20 Ceiling

Modified: Monday, 20 October 2025 14:00 BST - Written by Tim Boyer

STORY LINK Euro to Dollar Week Ahead Forecast: Analysts Warn of 1.20 Ceiling

The Euro to Dollar exchange rate (EUR/USD) is set to benefit from a prolonged dollar downtrend, according to RBC Capital Markets, which forecasts a rise to 1.24 by the end of 2026. HSBC, however, expects gains to stall near 1.20 amid lingering Eurozone headwinds.

EUR/USD Forecasts: Data input lost

RBC Capital Markets forecasts that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.24 by the end of 2026 as the dollar bear market continues.

HSBC expects EUR/USD will be capped around 1.20.

EUR/USD secured net gains during the week, but failed to hold above 1.17.

Markets had to contend with fears over a US-China trade war, the on-going US government shutdown, a wobble in the US banking sector and French political drama.

In comments during the week, Federal Reserve Chair expressed concerns over the labour market.

According to Powell; “If we move too quickly, then we may leave the inflation job unfinished and have to come back later and finish it. If we move too slowly, there may be unnecessary losses, painful losses, in the employment market. So, we’re in the difficult situation of balancing those two things.”

Markets overall are now very confident that rates will be cut twice by the end of the year, especially if there are evidence of stresses in the banking sector.

ING expects dollar losses to resume; “US consumers remain fearful of their employment prospects, and we doubt the Fed will stray from its path toward two more rate cuts this year. Lower US hedging costs and seasonal trends suggest recent $ strength won't last.”

RBC expects sustained dollar losses; “The medium-term case for USD weakness remains very compelling, driven by two primary arguments. First, there is an expectation of asset diversification, which drives a passive reallocation away from the US.

It added; “Second, is the cost-of-hedging argument as Federal Reserve rate cuts beginning in 2025 are expected to increase equity and rates hedge ratios for foreign investors. We expect this theme to continue to gain momentum into 2026.”

RBC looked at the potential scale for dollar losses; “Typically, USD weakening cycles see the USD depreciate by 20-40% before stabilizing. These long-term trends are rooted in structural asset allocation shifts rather than short-term market fluctuations, reinforcing the idea that the USD’s depreciation is a multi-year process driven by fundamental factors.”

Rabobank does not expect a widespread move away from the dollar; "In our view, the sheer size of US capital markets, the global reach of the USD and the hard power of the US, mean that the greenback will remain a safe haven asset in the foreseeable future.

It did, however, add; “That said, the USD continues to face headwinds, and the issue of Fed independence could undermine the greenback once Powell’s term as Fed chair ends next spring."

The Euro secured immediate relief as Prime Minister Lecornu survived to confidence votes in the National Assembly.

There are still important medium-term concerns. MUFG commented; “Downside risks for the EUR have eased alongside pressure on President Macron to call snap elections. However, political uncertainty could flare up again later this year if the proposed budget for next year fails to pass through parliament.”

HSBC is still cautious over the Euro-zone outlook; “Familiar headwinds such as weak Eurozone domestic demand and simmering French politics hold EUR-USD back.”

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TAGS: Euro Dollar Forecasts