Euro to Dollar Week Ahead Forecast: Rising Yields Set the Tone for EUR/USD

Modified: Monday, 1 June 2026 09:01 BST - Written by James Fuller

STORY LINK Euro to Dollar Week Ahead Forecast: Rising Yields Set the Tone for EUR/USD

The Euro to Dollar exchange rate (EUR/USD) recovered from recent lows as hopes for progress in US-Iran negotiations weighed on the US Dollar, but the outlook remains heavily influenced by shifting interest-rate expectations.

Investors are increasingly focused on whether rising inflation pressures will force the Federal Reserve to maintain a hawkish stance, potentially limiting further Euro gains.

EUR/USD Forecasts: Yields set to dominate

Danske Bank forecasts that the Euro to Dollar (EUR/USD) exchange rate will retreat towards 1.12 on a 12-month view.

UBS still expects that EUR/USD will regain ground and trade at 1.20 on a 12-month view.

EUR/USD found support below 1.16 during the week and rallied to above 1.1650 amid hopes that the US and Iran could find some kind of deal.

There has, however, been a further shift in expectations surrounding US interest rates with increased concerns over inflation pressures given upward pressure on food and energy prices.

ING commented that the dollar has proved resilient; “We suspect this is being driven by the view that the Federal Reserve is about to turn less dovish at a time when softer activity data is raising questions over how aggressive other central banks, especially in Europe, can be with their tightening this year.”

Danske Bank noted hawkish comments from Fed Governor Waller; “The balance of risks has shifted firmly towards faster inflation and consequently, tighter monetary policy.”

Danske commented on the relative outlook; The May flash PMIs showed that even the US is not immune to the negative effects of higher energy prices, as manufacturing new orders weakened from April. But relative to the euro area, sentiment effects weighing on services activity seem much more modest.”

The bank summarised; “We now expect the Fed’s next policy moves to be rate hikes in December and March, and consequently forecast EUR/USD trending lower towards 1.12 on a 12M horizon. Looking beyond the first-order energy shock, the repricing of relative nominal growth expectations is also increasingly evident in the markets.”

UBS expects yield trends will underpin the Euro; “While rate cuts have been priced out for the Federal Reserve, we see US rate hikes as unlikely. We now expect the next Fed rate cuts in 4Q26 and 1Q27, while revising our ECB outlook to include 25 bps hikes in June and July.”

Standard Chartered has a balanced view on EUR/USD. According to the bank, there are ECB positives; “A firm floor is established by the ECB’s hawkish policy stance and the Euro area’s persistent current account surplus, which provides a structural buffer against capital outflows. The region’s shift toward fiscal consolidation bolsters the currency’s long-term stability.”

It added; “However, the Euro area’s heightened sensitivity to ongoing energy supply risks remains a headwind. We believe this structural tug-of-war will keep the pair confined to its current tactical corridor as macro crosscurrents remain balanced.”

On a longer-term view, the bank does see EUR/USD gains to 1.20.

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TAGS: Euro Dollar Forecasts