Euro to Dollar Forecast: US Bond Market Fears Push EUR/USD Above 1.17

Modified: Monday, 24 August 2026 09:01 BST - Written by David Woodsmith

STORY LINK Euro to Dollar Forecast: US Bond Market Fears Push EUR/USD Above 1.17

The Euro to Dollar exchange rate (EUR/USD) surged to three-month highs above 1.1700 as turmoil in the US Treasury market and softer economic data triggered a sharp reassessment of the Dollar outlook.

Washington's decision to step up purchases of longer-dated government debt initially pushed yields lower, but also raised broader questions over demand for US assets and whether attempts to contain borrowing costs could ultimately weaken the currency.

EUR/USD Forecasts: US bond panic?

Danske Bank sees the potential for near-term Euro to Dollar (EUR/USD) exchange rate gains, but maintains a medium-term bearish view with a 12-month forecast of 1.12.

Danske commented; “Recent soft US data releases and the renewed political uncertainty after US Treasury’s unexpected buyback announcement have challenged our view in the short-term, but we expect relative macro momentum, monetary policy and elevated energy prices to maintain EUR/USD on a declining trend.”

In contrast, “UBS is backing EUR/USD gains to 1.20 by March 2027.

EUR/USD jumped to 3-month highs just above 1.17 during the week as the dollar posted sharp losses, but failed to hold this level.

US bond yields continued to move higher during the week and the US Treasury announced that it would increase the buying of long-term bonds to help ease upward pressure.

The dollar dipped sharply as yields declined and the US currency only partially recovered as bond yields moved higher again.

MUFG noted the risk that the move could be counter-productive; “and leads to reduced appetite for either holding US assets (UST bond sales) or reduced appetite for exposure to the US dollar (dollar selling) or both.”

Federal Reserve policy will also remain a key element.

UBS commented; “In our view, the likelihood of the Fed raising rates at all this year has declined significantly. This brings us back to our long-held view that the Federal Reserve will keep rates unchanged before eventually delivering cuts in 2027.”

It added; “If markets fully price out Fed rate hikes and begin to anticipate potential rate cuts in 2027, we expect current long US dollar positions to be squeezed, which should boost EUR/USD back towards 1.20.”

Danske Bank is positive on the relative US growth outlook; “We estimate that the underlying pace of real GDP growth in the US hovers around 2.5% in annualized terms, while our forecast for euro area’s 2026 growth is only 0.7%. Rising prices of refined oil products and natural gas weigh on the euro area’s terms-of-trade and pose a further downside risk for the growth towards winter.

It added; “We continue to see relative macro momentum as a negative driver for EUR/USD.”

Danske also expects the Fed to raise rates; “For the Fed, markets are pricing in 1-2 rate hikes, while we call for two (in December and March). The relative nominal interest rate spread has declined to its lowest level since 2024, but we expect this trend to revert higher over the coming year, which would weigh on the spot rate going forward.”

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TAGS: Euro Dollar Forecasts