UBS strategists are optimistic about the Euro's long-term recovery against the US Dollar, targeting a exchange rate of $1.20 by June 2027. The forecast is based on the belief that investors have overreacted to European risks, pushing the EUR/USD rate below what economic fundamentals justify. The Euro closed Friday near $1.1201, about 7% below UBS's mid-2027 projection.
The nearer-term objective is $1.16 by December 2026, according to strategists Constantin Bolz and Clémence Dumoncel. They argue that while the US economy has an advantage, markets have become overly pessimistic about Europe. Recent data shows European resilience despite geopolitical tensions and higher energy prices, suggesting the Euro is undervalued.
Several factors have driven the Dollar's strength, including US economic data, concerns over a potential diesel export ban, rising global yields, and worries about France's fiscal outlook. However, UBS remains skeptical about the lasting impact of some of these drivers, such as the low-probability diesel export ban.
The potential for a Euro rebound is also supported by crowded Dollar positions, which could unwind if sentiment shifts. UBS warns that further US economic strength, rising bond yields, weaker European growth, or worsening French fiscal concerns could delay the recovery. Conversely, softer US data and fading geopolitical concerns could accelerate it.