Euro to Dollar Forecast: Warsh Sends EUR/USD Back Towards 1.16

Modified: Monday, 31 August 2026 10:31 BST - Written by David Woodsmith

STORY LINK Euro to Dollar Forecast: Warsh Sends EUR/USD Back Towards 1.16

The Euro to Dollar exchange rate (EUR/USD) slipped towards one-week lows near 1.1600 after Federal Reserve Chair Kevin Warsh revived expectations of a September US rate hike. The Dollar's near-term yield support has strengthened, but the medium-term outlook remains fiercely contested as concerns over the US fiscal deficit and potential Dollar debasement clash with evidence of continued US economic outperformance.

EUR/USD Forecasts: Dollar debasement chatter

Standard Chartered has increased its 12-month Euro to Dollar (EUR/USD) exchange rate forecast to 1.20 from 1.18.

Danske Bank is forecasting 12-month EUR/USD losses to 1.12.

EUR/USD was, however, unable to make headway during the week and dipped to 1-week lows near 1.16. The dollar strengthened on Friday following the comments from Federal Reserve Chair Warsh.

Warsh stated that there were on-going concerns surrounding underlying inflation despite broadly favourable data releases during the Summer.

In response, there was a fresh shift in pricing with markets pricing in over a 50% chance that the Fed would hike rates at the September meeting.

The Euro gained some protection from a stronger than expected reading for German business confidence and expectations of a September ECB rate hike.

There was still an underlying debate surrounding the risks of sustained medium-term dollar losses. An important element remained the huge US fiscal deficit and potential financing difficulties.

In particular, there is an on-going debate over the risks of dollar debasement.

Scotiabank looked at the underlying dynamics; “Debasement typically implies that a currency’s purchasing power is being heavily eroded over time. In more recent times, it has reflected extremely lax fiscal or monetary policy that has driven hyperinflation, economic collapse and the near total destruction of a currency’s purchasing power (as in Weimar-era Germany or modern Zimbabwe).”

The bank overall noted the potential for market concerns; “Among the core major currencies, those that benefit from a tradition of strong fiscal discipline (CHF) and/or inflation credibility (EUR) would likely benefit the most if dollar debasement concerns were to strengthen in the medium-to-longer term. We are not there yet but the USD is still at risk of weakening broadly as markets probe the debasement thesis rather than fully embracing it.”

Standard Chartered commented; “Narrowing global rate divergence and persistent US fiscal and external imbalances weigh on the medium-term USD outlook. Softer US labour and inflation momentum support our view that the Fed can remain on hold, while further BoJ normalisation and relatively hawkish RBA and ECB policy biases should reduce the USD’s relative rate advantage.”

It added; “Fiscal and external imbalances leave the currency more dependent on sustained foreign capital inflows. Resilient US activity, AI-related capex and associated equity inflows remain significant offsets.”

Danske Bank is still broadly positive on the US economy; “The US business cycle shows few signs of cooling momentum with the composite PMI rising to 56.0 in August – the highest since March 2022.

It added; “Looking further ahead, we think that the relative macro-outlook still favours lower EUR/USD towards 2027.”

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TAGS: Euro Dollar Forecasts