Euro Dollar Forecast Turns Sour Amid Yield Headwinds
Bank of America and Goldman Sachs are forecasting a bearish trend for the Euro against the US Dollar, citing yield and energy headwinds as key factors. The bank believes calm conditions in G10 foreign exchange markets mask larger policy risks, including uncertainty surrounding the Federal Reserve, the Bank of Japan, and UK fiscal policy.
The EUR/USD exchange rate is expected to weaken towards 1.12 during the third quarter of 2026 before recovering to 1.15 by year-end and strengthening further towards 1.20 during 2027 as the Dollar's cyclical advantages gradually fade. The bank is maintaining a tactical bearish position through a three-month 1.15/1.13 EUR put spread, looking for limited downside in the single currency over the coming months.
The Euro remains 'stuck in the shadow' of the Dollar, with investors continuing to favour higher-yielding currencies while geopolitical tensions keep energy prices elevated. Higher US Treasury yields continue to provide an attractive return advantage over much of the developed world, while uncertainty over Federal Reserve policy is encouraging investors to retain Dollar exposure.