Euro to US Dollar Forecast: Yen Weakness Lifts USD, EUR Slips Toward 1.16

Modified: Wednesday, 22 October 2025 08:30 BST - Written by Frank Davies

STORY LINK Euro to US Dollar Forecast: Yen Weakness Lifts USD, EUR Slips Toward 1.16

The Euro to Dollar exchange rate (EUR/USD) edged lower to around 1.1625 as renewed yen weakness kept the dollar supported. Traders now look ahead to US inflation data for clues on whether the Federal Reserve will deliver another rate cut next week.

EUR/USD Forecasts: Unable to Make Headway

The Euro to Dollar (EUR/USD) exchange rate was unable to attack the 1.1700 area on Monday and retreated to around 1.1625 on Tuesday as the dollar secured a net gain in currency markets.

Although the US 10-year yield held below 4.00%, the dollar was able to make net gains as the yen posted sharp losses.

The Japanese currency remained under pressure in global markets following the confirmation of Takaichi as Japanese Prime Minister.

Markets are now even more doubtful that the Bank of Japan will hike interest rates at the late-October meeting which undermined the yen.

MUFG commented; “Overall, the latest developments will continue to encourage a weaker yen in the near-term although still expect initial investor optimism over a bigger policy shift in Japan to be left disappointed over time helping the yen to recover lost ground.”

UoB is not expecting a breakout; “While the softer underlying tone suggests EUR could edge lower today, any decline is likely part of a lower range of 1.1625/1.1660.

According to ING, there is scope for further short-term slippage; “EUR/USD remains almost entirely driven by US credit/equity sentiment: here, further stabilisation could take EUR/USD all the way to 1.160. Levels below that will be harder to justify unless the US CPI on Friday comes in hotter than expected.”

US interest rate expectations will be a key market influence.

At this stage, traders are pricing in close to a 100% chance of a rate cut at next week’s meeting and there has been no Fed pushback.

Rabobank commented; “it remains likely that the FOMC will make another cut in October, even if the Committee has limited visibility. With no convincing evidence available that could make them either skip October or make a larger cut in October, the FOMC is on auto-pilot.”

Markets are also pricing in over a 95% chance that there will be a further 25 basis-point cut in December.

With the government shutdown, however, US markets are continuing to operate in a data void, increasing the risk that there will be a mis-pricing of subsequent meetings.

Ray Attrill, head of FX research at National Australia Bank (NAB) commented; "Given where markets are priced the risk is that the commentary surrounding a cut next week really sort of leads to some questioning of current confidence about a follow-up move in December."

Nordea maintains a bearish dollar stance amid policy risks; “In the short term, the government shutdown and renewed trade tensions with China, could raise the risk premium investors demand to hold the dollar. They might also end up weakening the economy and the dollar even more.”

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TAGS: Euro Dollar Forecasts