Euro to Dollar Week Ahead Forecast: Hawkish Fed Pushes EUR to 11-Week Lows

Modified: Monday, 22 June 2026 09:01 BST - Written by Frank Davies

STORY LINK Euro to Dollar Week Ahead Forecast: Hawkish Fed Pushes EUR to 11-Week Lows

The Euro to Dollar exchange rate (EUR/USD) remains under pressure after the Federal Reserve delivered a more hawkish-than-expected policy update, reinforcing expectations that US interest rates could rise again before the end of 2026.

Although EUR/USD has stabilised after testing 11-week lows below 1.1450, investors remain focused on whether the Fed's inflation concerns or the ECB's tightening cycle will prove the dominant force in the months ahead.

EUR/USD Forecasts: New broom at the Fed

Danske Bank expects further Euro to Dollar (EUR/USD) exchange rate losses and stated; “we maintain our below-consensus 12M forecast at 1.12.”

According to the bank; “Tighter financial conditions are set to weigh on growth, which helps explain the decline in equities and underperformance of cyclical FX.”

ING sees the risk of further near-term EUR/USD weakness, but expects a rebound to 1.18 by the end of the year.

EUR/USD dipped to 11-week lows below 1.1450 during the week after a hawkish Fed statement before attempting to stabilise.

The Federal Reserve held interest rates at 3.75% at the latest policy meeting, in line with consensus forecasts. In the updated economic projections, half of the FOMC forecasted that interest rates would need to increase by the end of 2026.

Warsh did not make a forecast given his scepticism surrounding forward guidance. He was, however, generally hawkish in his comments, insisting that the central bank was determined to reach the 2% target.

Markets were more confident that rates would increase this year and the dollar made gains.

Danske Bank is backing rate hikes; “We maintain our forecast for two Fed hikes over the next year, in December and March. We see risks skewed towards an earlier start to the hikes, potentially in September, if macro data continues to come out stronger than expected.”

ING is not convinced that the US central bank will take action; “A more hawkish-than-anticipated FOMC meeting fuelled market expectations of a Fed rate hike. But the inflation backdrop should improve markedly over the next 12 months, and the true strength of the labour market remains uncertain. Significantly, half the FOMC don't think the Fed needs to hike, and we agree. A lengthy pause is our call.”

According to ING, energy prices will also be a key element; “Our adjustment lower in baseline energy prices means we are modestly raising our EUR/USD profile. Of course, that runs against the current dominant narrative in FX markets, which is a more hawkish Fed. Our preferred scenario now sees EUR/USD pressured over the next couple of months near 1.14/15, but turning higher into year-end on our call that US data will not support Fed rate hikes.

UBS maintains a positive stance on the Euro; “The Euro remains supported by the ECB's hawkish stance and commitment to price stability, though near-term growth risks persist.”

It also expects renewed dollar losses; “Toward the end of the year, we anticipate structural headwinds for the USD to re-emerge as the Fed moves into a position to cut rates.”

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TAGS: Euro Dollar Forecasts