Euro to Dollar Forecast: Can EUR/USD Hold 1.13 as Fed Rate Hike Bets Surge?

Modified: Monday, 28 September 2026 11:01 BST - Written by Frank Davies

STORY LINK Euro to Dollar Forecast: Can EUR/USD Hold 1.13 as Fed Rate Hike Bets Surge?

The Euro to Dollar exchange rate (EUR/USD) has fallen to 12-week lows near 1.1350 as surging US Treasury yields and expectations of further Federal Reserve tightening reinforce Dollar demand.

With the 10-year yield above 5.20% and markets increasingly pricing two more Fed hikes this year, the immediate balance of risks remains tilted towards further Euro losses.

EUR/USD Forecasts: Bonds Dominate

Nordea forecasts that the Euro to Dollar (EUR/USD) exchange rate will test 1.12 in the first half of 2027 before gains to 1.17 over the second half of next year.

Many other investment banks also see short-term downside EUR/USD risks before a recovery during next year.

Standard Chartered is still backing medium-term EUR/USD gains with a 12-month forecast of 1.18; “Potential ECB tightening should narrow the USEuro area rate differential over time, supporting EUR over 12 months.”

EUR/USD maintained under pressure during the week and slumped to 12-week lows near 1.1350 before stabilising.

US PMI business confidence data data was stronger than expected and there was hawkish rhetoric from Fed officials. This combination reinforced expectations that the Federal Reserve will increase interest rates further and a jump in yields also supported the US currency.

The 10-year yield jumped to fresh 3-year highs just above 5.20%.

Markets are also now pricing in close to a 70% chance of a rate hike in October and over a 50% chance of two hikes before year-end.

ING commented on the short-term view; “We still view the 1.1320-1.1330 area as the next key support for EUR/USD. We could reach that level quite quickly if oil prices take another sharp leg higher and/or US data surprises to the upside over the next couple of weeks.”

Nordea commented on Fed policy; “The US economy remains resilient, while inflationary pressures show few signs of easing. With the labor market also holding up well, the case for a more restrictive monetary policy stance is strengthening. While we maintain our forecast for two more hikes, we see the risks as tilted to the upside.”

Nordea did note risks associated with fiscal policy. It also noted potential headwinds for the US currency; “international portfolios are already heavily exposed to US assets, so the scope for further valuation-driven inflows may be narrowing. That could leave the dollar increasingly vulnerable should sentiment toward US assets deteriorate, or should foreign investors begin to reduce or hedge their exposure.”

Nevertheless, it added; “As always, though, that requires a catalyst, and for now we see none: growth is holding up, earnings have not disappointed, and nothing in the data points to a broad-based reassessment of US assets.”

Rabobank revised down its 1 month forecast to 1.14 from 1.16.

It added; "Our expectation that EUR/USD will return to 1.16 on a 3 month view reflects the Rabobank house view that the market has priced in too much Fed policy tightening."

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TAGS: Euro Dollar Forecasts