Euro to Dollar Forecast: EUR/USD Firm as Markets Watch Inflation Risks

Modified: Monday, 11 May 2026 07:31 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: EUR/USD Firm as Markets Watch Inflation Risks

The Euro to Dollar exchange rate (EUR/USD) traded close to 1.1770 as markets balanced hopes for progress in US-Iran negotiations against persistent inflation and energy market risks.

Investors remain focused on the outlook for global inflation and central bank policy, with expectations for further European Central Bank tightening contrasting with uncertainty surrounding future Federal Reserve rate decisions.

EUR/USD Forecasts: Markets on inflation watch

Scotiabank forecasts that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.22 at the end of 2026. UBS, however, expects a retreat to 1.14 as the dollar regains some territory.

EUR/USD secured a limited gain during the week and traded around 1.1770 as the dollar lost ground amid hopes for a US-Iran deal.

Near-term developments surrounding the US-Iran conflict will be a key element while monetary policy will be crucial over the medium term. Scotiabank expects yields will move against the dollar while UBS expects a shift in US expectations will support the dollar.

Nordea noted the impact of the US-Iran conflict and the economic implications; “The Middle East war and the closure of the Strait of Hormuz disrupt energy and supply chains and weaken confidence. We therefore downgrade our global growth forecast, while central banks face rising price pressures.”

Danske Bank commented; “For now, we still see a prolonged energy supply shock as the most pressing downside risk for EUR/USD.”

According to MUFG; “While the dollar has performed poorly given the current backdrop we still see scope for dollar gains over the short term on the assumption of a bigger risk-off move.

Nevertheless, it added; “We still though assume we get to a de-escalation scenario around end-Q2 and expect oil prices to gradually decline in H2. The fundamental backdrop for the dollar remains poor – cyclical & Trump related policy uncertainties – and hence assume dollar depreciation resumes in H2 2026.”

At this stage, markets expect the ECB will hike interest rates twice by September with no change for the Federal Reserve.

Scotiabank commented; “The divergence in policy rate paths remains a core pillar of our fundamental outlook. Narrowing interest rate differentials will pose a material headwind for the USD and erode a critical source of support. As such, we continue to expect broad-based weakness in the USD against all of the major developed economy currencies.”

Danske Bank noted underlying uncertainty; “While we see good arguments for both hikes from the ECB and cuts from the Fed this year, getting both calls exactly right might be difficult. If the ECB worries enough about high inflation to hike two times, the Fed might also voice inflation concerns and hold back on cuts and vice versa.”

UBS expects a shift in US expectations; “The path of least resistance will be in the direction of pricing in higher rather than lower rates in the US too. From the USD's perspective, this should make rates potentially a greater source of support than they have been since the conflict began.”

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