Dovish Fed Decision Could Send EUR/USD Back to Summer Highs

Citi strategists predict that the EUR/USD pair could retest its summer highs near 1.17 if next week's Federal Reserve decision triggers a 'sell the news' reaction in the dollar.

The analysts argue that a 'dovish hike' from the Fed, which is seen as the most likely outcome, could weigh on the dollar tactically, leading to a potential decline in its value.

However, persistent geopolitical risk premiums and attractive U.S. real interest rates are expected to limit the scale of any dollar decline, suggesting that the near-term view for the euro may be less constructive than the six-to-12-month outlook.

The EUR/USD pair has found support around 1.1575, a level that marked the high following the post-Liberation Day rally and has since acted as an important pivot within the pair's roughly 1.14-to-1.18 range over the past year.