EUR/USD Forecast 2026: Extended Euro Strength Expected Amid Dollar Weakness
As financial markets look ahead to 2026, analysts and major banks are projecting a continued strengthening of the euro against the U.S. dollar. The forecast for EUR/USD points to values climbing within the 1.20 to 1.25 range by the end of the year, driven largely by expected Federal Reserve rate cuts, a slowdown in U.S. economic growth, and improving eurozone fundamentals.
Federal Reserve Easing to Weaken the Dollar
The pivotal factor shaping currency trends for 2026 is the shift in U.S. monetary policy. In December 2025, the Federal Reserve reduced rates to the 3.50%-3.75% range, signaling a turn towards easier policy. This move, despite market expectations, was marked by some internal disagreement within the Fed, underscoring uncertainty about the U.S. economy’s trajectory. Fed Chair Jerome Powell highlighted increased risks to employment and pledged to maintain accommodative policies even if inflation slightly exceeds targets.
With inflation steady near 2.8% and unemployment climbing to a post-2021 peak of 4.4%, most analysts anticipate two to three additional rate cuts in 2026. These are expected to bring policy rates closer to a neutral range of 2.75%-3.00% by mid-year, thereby eroding the substantial real yield advantage that had buoyed the U.S. dollar since 2022. This evolving monetary landscape suggests a broad-based depreciation of the dollar over the coming year.
Consensus Among Major Banks on Euro Strength
Leading financial institutions uniformly point to increased EUR/USD levels:
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Goldman Sachs forecasts a target of 1.25, citing fading U.S. economic attractiveness and a trend of global investors diversifying away from dollar assets. They note an 8% currency-adjusted loss for European investors in U.S. equities during 2025 as a driver for renewed European market interest.
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J.P. Morgan projects the euro reaching between 1.20 and 1.22 by year-end, supported by two Fed rate cuts and weakening U.S. labor data, combined with uncertainty around U.S. tariffs dampening demand for dollar assets.
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Morgan Stanley expects a rise to 1.23 by spring 2026, followed by a modest pullback to 1.16 by year-end as U.S. growth stabilizes and Fed easing slows.
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UBS trimmed its forecast to 1.20, acknowledging political uncertainties in France that have muted the euro’s earlier gains while still anticipating appreciation as U.S. data weakens and the European Central Bank nears the end of its easing cycle.
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Deutsche Bank stands bullish with a 1.25 target, supported by a rebound in global growth, Germany’s large infrastructure spending plan, and improving geopolitical conditions. They also factor in a recovery of Asian currencies weakening the dollar broadly.
Technical Setup Supports Uptrend for EUR/USD
Technically, the euro is also positioned for further gains. The 200-day moving average near 1.1497 has acted as solid support since March 2025. A recent breakout above the 50-day moving average around 1.1609 reinforces the established upward trend. This sets up EUR/USD to challenge its 2025 high at 1.1919 early in 2026. Weekly charts show a bullish configuration, sitting above the 52-week moving average at approximately 1.128. Key swing lows throughout 2025 have established a reliable "buy the dip" pattern. This technical foundation supports expectations for continued momentum throughout the year.
The monthly outlook is also positive, with the 12-month moving average near 1.131 acting as a firm support level. Successfully breaching 1.1919 could open the door to reaching the multi-year peak near 1.235 by the end of 2026. ### Economic Fundamentals Shifting in Favor of the Euro
Several broader economic factors are reshaping the EUR/USD balance:
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U.S. Exceptionalism Fades: After years of outperformance, the U.S. economy shows signs of cooling with contracting manufacturing PMIs, slowing services, and tariff-related policy uncertainty hindering investment. A prolonged government shutdown in late 2025 further impaired output and data availability.
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Eurozone Growth and ECB Policy: The European Central Bank has cut its deposit rate to 2.0%, with President Christine Lagarde indicating stability in policy. While the Fed continues to ease, the ECB appears near the end of its rate cuts. Eurozone growth is projected to accelerate to about 1.5% in 2026, up from 0.9% in 2025, supported by Germany’s €500 billion infrastructure initiative.
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Structural Capital Flows: Global investors are gradually reallocating away from concentrated U.S. exposure, notably in technology and high-beta sectors, toward more diversified assets including European equities. This shift aligns with broader macroeconomic and geopolitical developments favoring the euro.
Outlook Summary
In sum, both fundamental and technical analyses converge on a scenario of extended euro strength in 2026. A dovish U.S. Federal Reserve, fading U.S. growth outlook, improving eurozone fundamentals, and sustained capital reallocation jointly suggest EUR/USD will trend higher, likely reaching 1.20–1.25 by year-end. While some short-term volatility and occasional pullbacks remain possible, the structural factors appear supportive of a dominant euro uptrend for the coming year.
Investors and forex traders should monitor Fed policy signals, economic data releases from the U.S. and Europe, and political developments that might influence sentiment. Nonetheless, the broad consensus points to dollar weakness as the primary driver, with the euro poised to capitalize on this dynamic in 2026.