Euro to Dollar Forecast: Rising Energy Costs Keep Pressure on EUR/USD

Modified: Monday, 18 May 2026 08:01 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: Rising Energy Costs Keep Pressure on EUR/USD

The Euro to Dollar exchange rate (EUR/USD) slumped to fresh 5-week lows near 1.1620 as rising energy prices, elevated US inflation and renewed geopolitical tensions combined to boost demand for the dollar.

Markets have sharply scaled back expectations of Federal Reserve rate cuts following another strong US inflation reading, while persistent uncertainty surrounding Iran and the Strait of Hormuz continues to support safe-haven demand for the US currency.

EUR/USD Forecasts: Energy Fears in Focus

Despite near-term vulnerability, ING is still backing medium-term Euro to Dollar (EUR/USD) exchange rate gains to at least 1.20.

The dollar posted significant gains during the week amid a dip in risk appetite and gains in energy prices. EUR/USD dipped sharply to 5-week lows near 1.1620.

The US currency also drew support from higher interest rates as markets considered US inflation risks. The headline US inflation rate increased to 3.8% from 3.3% and the highest reading since June 2023 with the core rate at 2.8% from 2.6%. Markets are now not expecting Fed rate cuts this year.

There was no progress on Iran during the week with Brent trading above $100 p/b.

ING noted risks surrounding energy prices; “First, even if the war were to end tomorrow, energy prices may not fall as far as many expect. Significant drawdowns in oil inventories are likely to keep upward pressure on prices for some time yet.”

It added; “Second, natural gas prices currently look too low. There is meaningful upside risk if disruptions persist into the third quarter, particularly as competition intensifies between Asian and European buyers for LNG.”

MUFG also noted concerns over fuel supplies; “the Amsterdam-Rotterdam-Antwerp energy hub is seeing jet fuel inventories falling sharply to a six-year low. Most estimates suggest some time during June would be the critical point for refined fuel shortages in Europe so there remains a period of time before disruptions become evident.

It added; “with risks of disruption rising, the appetite for selling the dollar at these weaker levels is likely to diminish.”

ING noted short-term risks; “Events in Iran will have a big say in the timing of the dollar sell-off. The longer energy prices stay high, the greater chance the Fed will have to sound hawkish in order to ride out the inflation surge. This could help the dollar and hurt risk assets.”

At this stage, markets are still backing an ECB rate hike at the June meeting.

ING commented; “the ECB has to hike in June and sound hawkish to keep real interest rates high during this period of elevated inflation.”

SocGen, however, notes that the Euro will be vulnerable if the ECB decides against a rate hike.

ING has not changed its medium-term outlook; We remain bearish on the dollar over a multi-quarter horizon as the Fed will eventually have the opportunity to cut rates back to neutral. We also note very little risk premia priced into the dollar currently – which could change in the run-up to the US Mid-term elections this November.

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