Euro-to-Dollar Forecast: Will EUR/USD Repeat 2025’s Strong Start?

Modified: Tuesday, 6 January 2026 16:46 BST - Written by David Woodsmith

STORY LINK Euro-to-Dollar Forecast: Will EUR/USD Repeat 2025’s Strong Start?

The Euro to Dollar exchange rate (EUR/USD) has slipped back below 1.17 after a strong 13% gain in 2025, as the dollar firms at the start of the new year.

Seasonal patterns tend to favour the US currency in January and February, raising the risk of near-term consolidation.

The outlook now hinges on whether US data weaken quickly enough to revive expectations of Fed easing.

EUR/USD Forecasts: New Year, 2025 Repeat?

UBS expects that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.20.

Citigroup, however, sees the potential for a retreat towards 1.10 by the middle of the year.

EUR/USD achieved a gain of 13% in 2025, but failed to break above the 1.18 level ahead of the New Year break and has retreated to below 1.17 on Monday.


The Euro has been hampered by a firmer dollar tone and ING notes that the US currency tends to perform well at the beginning of the year.

The bank commented; “Remember as well that after the soft seasonal trend for the dollar in December, seasonality turns more positive for the dollar in January and especially in February. In short, it seems that dollar bears will have their work cut out over the next couple of months.”

UBS considers that the bar to further losses may have increased; “As 3Q GDP, released just before Christmas, exceeded expectations, further weakness in labor market data is needed to put additional pressure on the USD.”

The bank still expects the fundamentals will still hamper the dollar; “We anticipate that data will remain soft, and that 4Q figures will also be dampened by the government shutdown. As a result, we expect the USD to weaken further at the start of the year.”

Markets are now pricing in less than a 20% chance of a further rate cut at the January policy meeting with close to a 50% chance of a move in March.

The dollar has been hampered by concerns over the risk to Federal Reserve independence with a new Chair due to be nominated soon before taking office in May.

Citi FX considers that the risks have been overplayed; “We believe Fed independence will not be at risk, and do not expect a more dovish Fed Chair will be able to dictate additional rate cuts if the backdrop does not support them.”

As far as the Euro-Zone is concerned, UBS notes that the French government agreed to a rollover of the 2025 budget into 2026.

According to the bank; “While this is not a definitive solution to the budget challenges, it has removed the immediate risk of government collapse due to failed budget negotiations.”

It added; “Although discussions will resume in January, we continue to see little risk of the French government coalition falling apart. This is also reflected in the narrowing spread between French and German government bond yields, which has declined to 70bps from a peak of 86bps in early October. In our view, this should continue to support a recovery in the euro.

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TAGS: Currency Predictions Euro Dollar Forecasts