Euro to Dollar Forecast: Near-Term EUR/USD Driven by Fed Outlook

Modified: Monday, 22 December 2025 08:01 BST - Written by David Woodsmith

STORY LINK Euro to Dollar Forecast: Near-Term EUR/USD Driven by Fed Outlook

The Euro to Dollar exchange rate (EUR/USD) eased back toward 1.17 after briefly testing 1.18, with markets focused firmly on the Federal Reserve outlook rather than euro-area policy.

Expectations of further Fed easing in 2026 continue to weigh on the dollar, even as the ECB signals no urgency to adjust rates.

The balance of risks remains tied to US growth, inflation and political pressure on the Fed.

EUR/USD Forecasts: All about the Fed

Nordea forecasts that the Euro to Dollar rate will strengthen to 1.24 by the end of 2026.

HSBC expects a EUR/USD move to 1.20 early next year before a retreat to 1.18 at the end of next year.

EUR/USD briefly hit 1.18 early in the week before a retreat towards 1.17.

SocGen commented on the short-term EUR/USD outlook; "A brief pullback is taking shape; defence of the 50-DMA near 1.1610 would be crucial for persistence in up move. If the pair establishes beyond 1.1800/1.1830, a larger uptrend is likely. The next objectives could be located at September peak of 1.1920 and 1.2000."

The ECB made no changes to interest rates at the latest policy meeting with the deposit rate held at 2.00%.

There was a limited upgrade to the Euro-Zone growth forecasts while inflation is forecast to remain around 2.00% over the medium term.

ECB President Lagarde stated that there was no pre-determined path for interest rates.

MUFG commented; “We have removed our forecast for one final 25 bps ECB rate cut in 2026. However, it remains premature for the euro-zone rates market to price in hikes as early as next year, given that inflation is still expected to undershoot the ECB’s target.

It added; “With the BoE and the Fed still expected to lower rates further next year, we forecast continued EUR strength in 2026 while the ECB keeps its policy rate on hold.

As far as the US is concerned, markets continue to expect further Fed rate cuts in 2026 after a benign inflation figure. The unemployment rate hit a fresh 4-year high at 4.6%, but overall jobs data was mixed.

According to Nordea; “We expect the dollar to weaken next year, when growth differentials and political uncertainty turns against the dollar. We are particularly concerned about the Trump Administration’s focus on influencing the Fed.”

Rabobank commented; “We expect the US economy to enter a cyclical downturn next year. While many G10 central banks have largely completed their rate-cutting cycles, the Fed is likely to continue easing well into 2026.

It added; “Additional risks for the dollar include a new round of tariffs, persistently high inflation combined with negative real rates, or a sharp correction in AI-related stocks.”

CIBC sees a mixed picture; “In our view, the risks tilted towards USD downside into early 2026 are not long lasting. Once they go away, we suspect the market would start to realize that Fed terminals have gone too far.”

It added; “Further, CIBC Equity Strategy believes the equity market rally could run out of steam in H2, increasing the propensity of a USD rally in risk off. By the middle of the year, we are looking for an inflection point for the greenback to turn slightly higher.”

From a high of 1.21, it expects EUR/USD to trade at 1.18 at the end of 2026.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Euro Dollar Forecasts