Euro to Dollar Forecast: EUR/USD to Break Above 1.17 on FED Rate Cut?

Modified: Monday, 8 December 2025 10:01 BST - Written by David Woodsmith

STORY LINK Euro to Dollar Forecast: EUR/USD to Break Above 1.17 on FED Rate Cut?

The Euro to Dollar exchange rate (EUR/USD) traded around 1.1650 after failing to break 1.1700, with markets now focused on this week’s Fed decision and an expected cut to 3.75%.

The medium-term outlook remains divided, with some banks flagging structural dollar weakness while others warn of Euro vulnerability.

Policy signals for 2025–26, including the appointment of a new Fed Chair, will shape the next leg for the pair.

EUR/USD Forecasts: Fed decision time

Bank of America forecasts that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.22 at the end of 2026, although it has lowered its projection from 1.25 previously.

Credit Agricole, however, forecasts that EUR/USD will slide to 1.10 by the end of next year.

This week, EUR/USD has edged higher but has not been able to break above 1.1700 and trading around 1.1650.

There are now strong expectations that the Federal Reserve will cut interest rates again at this week’s policy meeting with a reduction to 3.75%.

Fed policy next year is likely to be a key element for the US currency with markets expecting further cuts.

The Administration will also nominate a new Fed Chair to take over from Powell when his current term expires in May.

According to Bank of America; “Even if this current easing pace is moderated during Powell’s last few meetings as Chair, we believe the next Fed Chair will bring a more dovish shift in policy (at a minimum) and potentially greater concerns over the Fed’s independence overall.”

ING added; “If political pressure mounts on the Fed to cut rates, we will all definitely be talking more about real interest rates in the US turning negative again. Two-year real swap rates have dropped to just 0.75% now from a peak of 2.5% in 2023. Any suggestion that the Fed is taking rates to inappropriately low levels could see real US rates turn negative again and weigh on the dollar.”

Rabobank also noted potential dollar risks; “While plenty of Fed rate cuts are in the price, there is a risk that the market may view the set up in the FOMC next year as becoming overly politicised which could threaten Fed credibility and unsettle USD investors. Other risks for the USD would include a hit to consumer wealth and spending caused by a sharp AI related drop in equity prices.”

Credit Agricole takes a notably different stance; We expect no Fed cuts in 2026 – a more hawkish outlook than that expected by US rates markets.

It added; “We are in broad agreement with the market expectation of stable ECB rates next year, however. The EUR-USD policy rate spread should turn more negative again in 2026, in a blow to EUR/USD.”

Credit Agricole also notes fundamental Euro vulnerability; “French political risks could offset any positives from fading geopolitical risks while the German fiscal stimulus remains a long-term growth positive.

It added; “US tariffs and a domestic-demand-driven recovery at home to hurt the Eurozone’s net exports and reduce corporate demand for EUR.”

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TAGS: Euro Dollar Forecasts