Euro to Dollar Forecast: Oil Spike Drives EUR/USD to 7-Month Lows

Modified: Monday, 16 March 2026 10:01 BST - Written by Tim Boyer

STORY LINK Euro to Dollar Forecast: Oil Spike Drives EUR/USD to 7-Month Lows

The Euro to Dollar exchange rate (EUR/USD) remained under pressure as surging energy prices and geopolitical tensions boosted demand for the US dollar.

With Europe highly exposed to rising oil and gas costs, the single currency slid to seven-month lows below 1.1450, while several major banks warn the pair could weaken further in the near term if the energy shock persists.

EUR/USD Forecasts: Energy fears hurt the Euro

Danske Bank now forecasts that the Euro to Dollar (EUR/USD) exchange rate will retreat further to 1.12 on a 1-3-month view.

MUFG expects a retreat to 1.13, although both banks still expect medium-term EUR/USD gains.

After any further setback, Nordea is backing gains to 1.22 at the end of 2026.

According to Nordea; “The conflict in the Middle East may therefore explain some of the dollar’s recent strength in the short term. However, it does little to change our broader view – we still expect the dollar to weaken over the coming years, as the underlying issues in the US debt situation become increasingly apparent.”

EUR/USD was subjected to sustained pressure during the week as the spike in energy prices triggered additional dollar demand and undermined the Euro. The pair dipped to 7-month lows below 1.1450.

Danske Bank commented; “We think the Middle East energy shock shifts the EUR/USD outcome space also beyond the first-order terms-of-trade effect. We close our earlier recommendation for a long EUR/USD position and now recommend a tactical short EUR/USD spot position with a horizon of 1-3M with a target of 1.1200.

According to MUFG; “It is hard to look beyond the very near-term risks of a further extension of US dollar strength. The scale of increase in energy prices with no obvious ‘off-ramp’ to allow for de-escalation will likely see yields remain high, hitting growth expectations and hence equities.”

The Euro remains sensitive to energy prices. According to Barclays strategist Leftheris Farmakis the general rule of thumb is the euro tends to lose around 0.5% for every 10% increase in the oil price and loses 2.5% whenever natural gas prices double.

The Federal Reserve and ECB will both announce interest rate decisions in the week ahead. Neither bank is expected to change rates, but the impact on yields will be watched closely.

Rabobank commented; “The policy outlook is now inextricably tied to the situation in the Middle East, making for a very bifurcated outlook. The current energy shock probably does not warrant rate hikes, but the ECB will signal readiness to act if the situation deteriorates. Risks are now firmly skewed to earlier hikes than we have pencilled in.”

So far, Euro yields have increased more than US rates.

MUFG commented; “One supportive factor for the EUR is the recent shift in yield spreads, which have moved in its favour.”

Danske added; “We acknowledge that the interest rate differential between EUR and USD has narrowed notably in favour of the former, but we do not expect this to last. In our view, the ECB is very unlikely to hike against a pure supply shock especially, when longer-term inflation expectations remain little changed.

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TAGS: Euro Dollar Forecasts