Euro to Dollar Week Ahead Forecast: Weak US Jobs Data Puts Fed Outlook in Focus

Modified: Monday, 6 July 2026 09:01 BST - Written by Frank Davies

STORY LINK Euro to Dollar Week Ahead Forecast: Weak US Jobs Data Puts Fed Outlook in Focus

The Euro to Dollar exchange rate (EUR/USD) has stabilised above the 1.14 level after weaker-than-expected US jobs data prompted investors to reassess expectations for further Federal Reserve interest-rate hikes.

While the softer labour market report has eased some of the Dollar's recent momentum, analysts remain divided over whether the pause is temporary or the start of a broader reversal.

EUR/USD Forecasts: Fed policy crucial

Danske Bank maintains a 12-month Euro to Dollar (EUR/USD forecast of 1.12 as the US raises interest rates.

In contrast, Scotiabank is still backing EUR/USD gains to 1.22 by the end of 2026 as yields don’t back dollar gains.

EUR/USD again found support below 1.14 during the week and secured a limited net recovery to near 1.1450.

Interest rate expectations will be a key element with a particular focus on the Federal Reserve. Danske Bank commented; “We forecast two hikes for December and March. We see relative monetary policy as a negative driver for EUR/USD, especially towards 2027.”

The latest US employment report was weaker than expected with the increase in non-farm payrolls held to 57,000 for June compared with consensus forecasts of around 115,000. The main feature was a sharp drop in the labour force.

In response, there were fresh doubts whether the Fed would hike interest rates which curbed dollar support.

MUFG commented; “the tariffs implemented in 2025 are set to fall out of the annual CPI calculations over the coming months that will add downside pressure to annual inflation while a quirk in rental inflation should also reverse in H2. That will help ease Fed concerns over inflation risks that should see yields decline going forward.”

It added; “Apart from the RBNZ, no other G10 central bank has as much tightening priced as the Fed and hence there is scope for US yields to fall relative to elsewhere. This should see this recent dollar buying momentum reverse. We would also expect some renewed focus on US fiscal risks.”

Scotiabank also considers Fed expectations have overshot; “We see the USD’s latest gains as being counter to the longer-term fundamental trend, and see little upside from current levels.

It added; “The Fed’s belated reaction to the inflationary pressures arising from the US/Iran conflict have delivered a material reappraisal of its policy path. However, we believe that the Fed’s repricing is overdone while also suspecting that markets may be underestimating the hawkish appetites of the BoC, ECB, and BoE (as well as the BoJ).”

Danske still sees scope for net Euro losses; “We turned our EUR/USD forecast profile lower in May as we saw a structural shift in relative macro and monetary policy drivers. The moderation in energy prices is EUR-positive in isolation, but the fact that EUR/USD has still declined over the past month supports our view that the cross will be driven lower by more long-term factors.”

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TAGS: Euro Dollar Forecasts