Euro to Dollar Forecast: EUR/USD Jumps to 7-Week Best as Fed Divisions Deepen

Modified: Thursday, 11 December 2025 16:46 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: EUR/USD Jumps to 7-Week Best as Fed Divisions Deepen

The Euro to Dollar exchange rate (EUR/USD) surged above 1.17 after the Fed’s divided rate cut unsettled the dollar, despite markets expecting a hawkish message from Powell.

ING sees scope for consolidation in the high 1.16s unless US jobs data softens or the ECB upgrades growth forecasts next week.

Longer-term projections still lean Euro-positive, with some banks targeting 1.24 into 2026.

EUR/USD Forecasts: 7-Week Highs

The dollar was unable to gain support from the Federal Reserve interest rate decision with the EUR/USD) exchange rate surging to 6-week highs just above the 1.1700 level.

Markets had expected a more hawkish press conference from Chair Powell while deeper divisions within the Fed unsettle market sentiment.

ING expects EUR/USD will struggle to extend gains for now; “Expect EUR/USD to consolidate in the high 1.16s, and a move to our 1.1800 year-end target will probably take some soft US jobs data next week or some important positive growth forecast revisions from the ECB next week.”

From a longer-term perspective, MUFG has an end-2026 EUR/USD) forecast of 1.24

The Federal Reserve cut interest rates by a further 25 basis points to 3.75%, in line with strong market expectations.

Three members dissented against the decision with Miran calling for a larger 50 basis-points cut while Schmid and Goolsbee voted to keep rates at 4.0%.

Chair Powell pointed to divergent pressures on the central bank with inflation trending higher while the labour market was weakening. Powell pointed to the notable difficulties in setting interest rates in this environment.

Powell also pointed out that the bank would be data dependent.

Looking at interest rate projections from committee members, the median forecast was for one cut in 2026. There was, however, again notable divergence with seven members forecasting that rates would not be cut next year.

The voting pattern increased evidence of divisions between the Governors and regional members.

ING commented; “Investors were bracing for a hawkish rate cut. In the end, there were only two dissenters to the cut and the Fed kept a rate cut in their median forecast for 2026. Equally, it seems that Chair Powell was reluctant to be boxed into the view that the Fed was now on a pause.”

MUFG noted that several of the non-voting members would have opposed a cut at this meeting and two will be on the voting roster next year.

In this context, it sees potential opposition to a further cut early in 2026.

MUFG added; “Overall, the Fed’s policy update does not change our view that the Fed will deliver further rate cuts next year although the timing of the next cut may be delayed until the new Fed chair is in place after May. Our latest US dollar forecasts expect a more stable US dollar at the start of next year followed by further weakness as the year progresses.”

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TAGS: Euro Dollar Forecasts