Euro to Dollar Forecast: EUR Steady Near 1.17 as ECB Rate Hike Looms

Modified: Monday, 4 May 2026 12:36 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: EUR Steady Near 1.17 as ECB Rate Hike Looms

The Euro to Dollar exchange rate (EUR/USD) is holding close to 1.17, with markets braced for a likely rate hike from the European Central Bank as policymakers respond to rising inflation risks.

Despite ongoing volatility driven by energy prices and Middle East tensions, expectations of tighter ECB policy are helping underpin the Euro, while uncertainty over the Federal Reserve outlook is keeping the dollar on the defensive.

EUR/USD Forecasts: ECB Set to hike

Deutsche Bank forecasts that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.25 at the end of this year.

According to Deutsche Bank; “Our medium-term forecasts continue to look for dollar weakness. The most elementary reason for this view is that the dollar remains very high - in real trade-weighted terms it is 16% above the long-term average.”

It added; “It's important to realise that what's required for dollar weakness isn't a sell America shift - instead a reasonable pullback from such robust buying would have an impact.”

Credit Agricole expects that EUR/USD will retreat to 1.13 by year-end.

EUR/USD found support below 1.17 in choppy trading during the week with further volatility in oil prices.

Yield trends and energy prices will tend to dominate in the near term with major uncertainty surrounding the Iran conflict.

There is still a stalemate in the Iran situation while the Strait of Hormuz remains effectively closed. Oil prices hit 4-year highs during the week before retreating slightly.

Credit Agricole commented; “We think that investors may be overly optimistic about the prospects for a quicker abatement of the Middle Eastern tensions. A continuing blockade
of the flow of energy could hurt global growth prospects and thus erode investors’ risk appetite, in a boost to the safe-haven USD.”

According to ING; “We tend to favour EUR/USD continuing to trade in a 1.1650-1.1750 range in the near term and do not expect the dollar to return to its benign bear trend until there is a lot more clarity in the Gulf.”

The Federal Reserve held interest rates at 3.75% following the latest policy decision.

Miran again voted for a cut while three regional members dissented against the decision as they opposed an easing bias.

Fed Chair-elect Warsh will face a confirmation vote in the full Senate with an assumption that he will take office for the June meeting.

Danske Bank commented; “We still think the Fed will eventually resume its easing cycle with two final cuts in September and December. The war in Iran hurts the economy where we see it as already vulnerable to setbacks - in private consumption via lower disposable income, and in non-AI investments via higher interest costs.

Credit Agricole expects a more hawkish stance; “We believe that the Fed would remain on hold for an extended period under Kevin Warsh because the war in Iran could keep US inflation uncomfortably high in the next 12M.

The ECB held interest rates at 2.00% during the week, but there were strong hints that rates will be increased in June.

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TAGS: Euro Dollar Forecasts