Euro to Dollar Forecast: Fed Doubts Lift EUR/USD to Four-Week High

Modified: Monday, 17 August 2026 09:01 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: Fed Doubts Lift EUR/USD to Four-Week High

The Euro to Dollar exchange rate (EUR/USD) has climbed to four-week highs above 1.1580 as fading expectations of a September Federal Reserve rate hike weigh on the US currency.

The Euro's advance remains vulnerable, however, with European natural gas prices above €60/MWh and continued disruption through the Strait of Hormuz threatening to undermine the region's improving economic outlook.

EUR/USD Forecasts: Watching gas prices

Despite initial hesitation, UBS expects the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.20 by the second quarter of next year.

EUR/USD advanced to 4-week highs just above 1.1580 during the week despite concerns surrounding the further increase in European gas prices with shipments through the Strait of Hormuz still severely limited.

ING commented; “Better hard activity data and eurozone economic numbers generally surprising on the upside have failed to provide the euro with much of a lift. That may be owed to unresolved tension in the Gulf, which is keeping European natural gas prices above €60/MWh.”

According to SocGen the pair needs to break 1.1625 to maintain upward momentum.

Bank of America has exited its short EUR/USD recommendation and added; “We do not expect the USD sell-off to extend without meaningful data deterioration. For now, the dollar’s slide is a front-end rates story wearing a risk-premium mask that slips on closer inspection.”

ING does see the Euro as slightly undervalued; “Our models suggest EUR/USD’s short-term fair value sits in the 1.160-1.1650 area.

It added; “That supports our positive bias on EUR/USD, even though we aren’t convinced a break above 1.160 is on the cards in the coming days unless communication from the Fed starts to surprise on the dovish side. For now, EUR/USD bulls like us may be content with strengthening technical support around 1.1500.”

The latest US consumer prices inflation data was in line with market expectations with the headline and core rates posting a 0.1% decline to 3.4% and 2.5% respectively.

In response, there was a shift in Federal Reserve expectations with traders cutting the chances of a September rate hike to around 30% from 50% the previous week.

UBS noted that the dollar has still been broadly resilient and added; “we attribute this stability to the prospect of firm US economic activity in the second half of the year, amid positive spill over from second-quarter GDP and US earnings.

It added; “Against this backdrop, it is hard to imagine the USD weakening sharply unless growth falters or inflation cools significantly faster than expected. So we keep our near-term EUR/USD forecast at 1.16.”

The bank still expects medium-term losses; “However, we still believe the USD will soften in time. Earnings growth has also picked up in Japan and Europe, with equity market performance holding up well relative to the US in recent weeks.”

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TAGS: Euro Dollar Forecasts