Euro to Dollar Forecast: EUR/USD Slides as Dollar Regains Momentum

Modified: Tuesday, 26 May 2026 08:01 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: EUR/USD Slides as Dollar Regains Momentum

The Euro to Dollar exchange rate (EUR/USD) came under renewed pressure during the week, slipping below 1.1600 as rising US yields, persistent inflation concerns and stronger demand for the dollar weighed on the single currency.

While some banks continue to forecast a stronger Euro over the medium term, investors have become increasingly cautious as expectations for Federal Reserve rate cuts fade and evidence of slowing Eurozone demand continues to emerge.

EUR/USD Forecasts: Dollar back in the game

ING considers that the Euro to Dollar (EUR/USD) exchange rate could weaken to 1.15 in the short term, but is backing gains to 1.20 by the end of this year.

Danske Bank, however, has shifted its view sharply and now expects that EUR/USD will retreat to 1.12 on a 12-month view.

EUR/USD retreated to lows below 1.16 during the week as the dollar gained net support and the Euro struggled amid evidence of weaker Euro-Zone demand.

ING noted that the dollar has the potential for further near-term support; “When we argued in February that the dollar’s decline was cyclical rather than structural, we constructed a USD safe haven gauge combining the dollar’s correlation with US equities and with 10-year Treasury yields. That measure now points to the strongest safe haven appeal for the dollar since late 2022, and the second-highest reading in our dataset back to 2005.”

The bank added; “Risk assets and currency markets have shown remarkable resilience to the energy shock. And arguably the dollar should be trading stronger based on US energy independence, surging AI-driven investment and a less dovish sounding Fed.

Danske Bank also sees scope for near-term dollar gains; “Recent US data suggests that underlying price pressures are emerging and demand has held up better than expected, beyond the direct impact of higher energy prices. In turn, markets have sharply scaled back on Fed easing expectations and are now pricing a clear tightening bias. This has hit risk appetite more than the energy price volatility earlier in the month.”

Federal Reserve policy will be a key element, especially with new Chair Warsh taking office at the end of May.

ING expects dollar losses later in the year; “Risk premia going back into the USD ahead of November Mid-terms and a Fed cut in December should bring EUR/USD to 1.20.”

CIBC is not backing Fed rate hikes; ”While y/y inflation appears too elevated, the forward looking outlook should be more moderate, even after taking into account second round effects. And on the labour market, we see signs that the second warmest US winter on record has pulled forward typical spring hiring. For these reasons, we maintain our Fed call, but we admit that further resilience in the data could have us shifting this stance.”

The bank added; “We remain of the view that absent near term structural headwinds the EUR should remain relatively well supported, indeed we continue to anticipate EUR/USD testing previous year to date highs, (1.2081 from 27 January) prior to year end. However, such assumptions are in part predicated on an eventual easing in risk dynamics.”

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TAGS: Euro Dollar Forecasts