Euro to Dollar Forecast: French Debt Fears Push EUR/USD to 16-Month Low

Modified: Monday, 5 October 2026 09:01 BST - Written by David Woodsmith

STORY LINK Euro to Dollar Forecast: French Debt Fears Push EUR/USD to 16-Month Low

The Euro to Dollar exchange rate (EUR/USD) has recovered modestly after sliding to 16-month lows around 1.1220, but the Euro remains under heavy pressure as concerns over French debt and political stability combine with elevated global bond yields.

Softer US employment data has taken some momentum out of the Dollar, although analysts warn that the broader geopolitical and fiscal backdrop remains hostile for a sustained Euro recovery.

EUR/USD Forecasts: French fears intensify

MUFG has cut its end-2026 Euro to Dollar (EUR/USD) exchange rate forecast to 1.12 from 1.18 previously.

According to MUFG; “We see near-term risks of a further overshoot of yields that could see the dollar extend gains further.”

Deutsche Bank, however, is backing net gains to 1.17 by the end of this year.

According to Deutsche Bank; “With global growth solid, energy markets already pricing a lot of risk premium and the Fed hiking cycle very well priced, this is the wrong time to be chasing EUR/USD lower.”

EUR/USD dipped sharply to 16-month lows at 1.1220 during the week before a slight recovery after the latest US jobs data. The Euro was undermined by fears over the French debt situation as global and French bond yields moved sharply higher. Bond markets remained under pressure and energy fears persisted.

Given the combination of fundamentals, Lloyds Bank now sees the risk of EUR/USD dipping below 1.10.

ING commented on the near-term outlook; “Barring some breakthrough in US-Iran negotiations, it looks like the dollar will stay bid in October. For reference, DXY has appreciated in seven of the last 10 Octobers.”

Danske Bank commented on the dollar fundamentals; “The past week has illustrated how USD exposure remains a strong portfolio diversifier in an environment where the main risks are related to higher energy prices and/or global monetary policy tightening more than expected.”

Federal Reserve policy will remain a key element. The latest jobs data was slightly weaker than expected with a 29,000 increase in non-farm payrolls for September compared with consensus forecasts of around 90,000 with the August gain revised down to 133,000 from 162,000. The unemployment rate edged up to 4.2% from 4.1%.

There were also relatively dovish comments from a key Fed official and markets were notably less confident that rates would be increased again in October.

Rabobank is not convinced that Fed expectations are justified; “Our forecast that EUR/USD can return to 1.16 on a 3-month view reflects RaboResearch’s house view that the market has overpriced Fed rate hike risk.

It did add; “That said, we retain the view that the EUR will struggle to find significant upside momentum during the duration of the Iran war. Looking ahead, political concerns related to next year’s French Presidential election may also limit potential for the EUR.”

MUFG is still backing EUR/USD gains next year; “We still believe the US economy will see inflation come lower sooner than expected and hence the pricing of rate hikes in 2027 will be taken out.” It has a Q3 2027 forecast of 1.18.

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TAGS: Euro Dollar Forecasts