Euro to Dollar Forecast: EUR/USD Volatile as ECB Turns Hawkish

Modified: Monday, 23 March 2026 09:01 BST - Written by James Fuller

STORY LINK Euro to Dollar Forecast: EUR/USD Volatile as ECB Turns Hawkish

The Euro to Dollar exchange rate (EUR/USD) remained volatile as surging energy prices and a more hawkish European Central Bank stance reshaped market expectations.

While the Euro briefly rebounded after the ECB signalled concern over inflation risks, elevated oil and gas prices continue to underpin the US dollar, leaving EUR/USD vulnerable to further downside in the near term.

EUR/USD Forecasts: ECB takes fright

Credit Agricole is still forecasting a Euro to Dollar (EUR/USD) exchange rate decline to 1.10 this year before a rebound.

ING expects a rebound later in the year; “Even with higher energy prices, we suspect EUR/USD can find support ahead of 1.10/12 and tentatively forecast a pick-up to 1.18/20 by year-end as the Fed resumes its easing cycle.

It added; “But Gulf oil flows need to restart to cement a EUR/USD floor.”

According to Credit Agricole; “We think that the risks to market ECB-Fed rate spread expectations and thus the EUR/USD outlook remain to the downside in the next 6-9M, broadly consistent with our current FX forecasts. We doubt that a repeat of the 2022 EUR/USD sell-off is likely, however, given that the ECB seems to be more willing to fight inflation.”

Energy prices and central bank meetings dominated during the week. There was a fresh jump in oil and gas prices following an Israeli attack on the South Pars gas field which was followed by an Iran strike against the major Qatar gas processing plant which damaged production capacity.

Higher energy prices sapped support for the Euro and triggered defensive dollar demand.

EUR/USD dipped to re-test support near 1.1450 before rallying to above 1.1550 after the ECB policy meeting in very choppy trading.

There was a spike in Euro yields following a hawkish ECB policy meeting. The central bank made no changes to interest rates with the deposit rate held at 2.0%, but warned over the inflation implications of higher energy prices which triggered market chatter over multiple rate hikes this year.

According to ING; “ECB officials are already considering a rate hike in April should inflation rise too far above target. That can be a game-changer. Despite the recent hawkish repricing, markets were pricing in a hike only from June before yesterday.”

ING added; “Our economists aren’t ready to pencil in a rate hike yet as a positive turn in the war and energy prices can still discourage the hawks. But the chances of a hike have undoubtedly increased, which raises the upside potential for the euro beyond the near-term impact of energy prices.”

MUFG commented; “we are not convinced that the jump in front-end yields will continue to support the euro. The DXY correlation with yield spreads has weakened considerably with a correlation with Brent taking over and hence we continue to see EUR/USD downside risks related to the conflict.”

The Federal Reserve held interest rates at 3.75%, also in line with consensus forecasts. The bank did note a high degree of uncertainty, but was more circumspect on the guidance and there were no overt warnings over the potential for rate hikes.

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TAGS: Euro Dollar Forecasts