EUR/USD Forecast 2026: Euro to Dollar Exchange Rate Predictions

EUR/USD: The Story So Far in 2026

The euro has started 2026 on a remarkably strong footing, trading near $1.1830 after gaining 14% against the dollar in 2025 – its best annual performance in nearly a decade. The single currency briefly touched $1.2019 on January 27, marking a four-year high, before pulling back slightly in early February.

What drove the euro’s 2025 surge?

• Dollar weakness: Trump tariff fears, Fed independence concerns, and policy uncertainty sent the DXY down 10% in 2025
• Germany’s fiscal revolution: €1 trillion infrastructure and defense spending program announced in 2025
• ECB credibility: Successfully brought inflation to target (1.9% in December 2025) and paused rate cuts
• Capital rotation: European investors repatriated funds from US assets, foreign investors increased allocation to EU bonds and equities
• Eurozone resilience: Q4 2025 GDP growth of 0.3% beat expectations; Germany finally escaped stagnation

The key question now is whether this momentum can continue, or if the euro has run too far too fast.

The Three Scenarios for EUR/USD in 2026

Key Drivers of EUR/USD in 2026

1. Federal Reserve vs. ECB Policy Divergence (Most Important)

The single biggest driver of EUR/USD is the growing gap between Fed and ECB monetary policy.

Federal Reserve outlook:

• Current rate: 3.50-3.75% (after pausing in January 2026)
• Market expectation: 1-2 cuts in 2026 (most likely June and possibly December)
• End-2026 target: 3.00-3.25%
• Key risk: Labor market weakness could force more aggressive cutting (3-4 cuts)
• Fed Chair transition: Jerome Powell’s term ends May 2026; Kevin Warsh nomination creates uncertainty

European Central Bank outlook:

• Current rate: 2.00% deposit facility rate
• Market expectation: Holds throughout 2026 (inflation at target, growth improving)
• Dovish risk: If EUR/USD breaks above 1.24-1.25, ECB may resume cuts to weaken euro
• Hawkish risk: If German stimulus overheats economy, ECB could tighten in early 2027

The divergence trade: If Fed cuts to 3.00% while ECB stays at 2.00%, the 100-basis-point narrowing in the US rate advantage strongly supports EUR/USD appreciation.

2. Germany’s Fiscal Revolution & Eurozone Growth

Germany’s decision to abandon fiscal austerity and spend €1 trillion on infrastructure and defense is the most significant economic policy shift in Europe since the euro crisis.

Impact on EUR/USD:

• Growth boost: Germany forecast to grow 1.0% in 2026 vs. 0.0% in 2025; broader eurozone to benefit
• Investment inflows: Infrastructure spending attracts capital to European construction, industrials, defense sectors
• Multiplier effects: German growth lifts neighboring economies (France, Netherlands, Austria, Poland)
• ECB policy support: Stronger growth allows ECB to keep rates higher for longer

Current eurozone data:

• Q4 2025 GDP: +0.3% (beat expectations of +0.2%)
• Germany Q4: +0.3% (first positive quarter after long stagnation)
• Spain Q4: +0.8% (leading eurozone growth)
• Inflation: 1.9% in December 2025 (below ECB’s 2.0% target)

3. US Dollar Weakness & Structural Concerns

The dollar’s 10% decline in 2025 reflected more than just cyclical monetary policy – structural concerns are weighing on the greenback.

Why the dollar remains under pressure:

• Tariff uncertainty: Trump’s on-again, off-again tariff policy creates ongoing uncertainty
• Fed independence concerns: Political pressure on Fed, leadership change in May 2026
• Fiscal sustainability: US debt levels and deficit concerns
• Capital rotation: European investors repatriating from US assets; fund managers at lowest USD exposure since 2006
• Reserve currency diversification: Central banks slowly reducing dollar reserves in favor of gold, euro

These structural headwinds mean the dollar may struggle to stage a significant recovery even if cyclical factors (like relative growth or rates) turn supportive.

4. Interest Rate Differential & Carry Trade Dynamics

EUR/USD is heavily influenced by the interest rate gap between US and eurozone rates.

Quarterly EUR/USD Forecast for 2026

Critical Dates for EUR/USD in 2026

• February 6: ECB Interest Rate Decision – Expected to hold at 2.00%
• March 17-18: Fed FOMC Meeting – Critical for rate cut guidance
• April 17: ECB Meeting – Watch for euro strength concerns
• May 15 (approx): Fed Chair Powell’s term ends; Kevin Warsh likely takes over
• June 16-17: Fed FOMC Meeting – Most likely date for first 2026 rate cut
• September 15-16: Fed FOMC Meeting – Possible second cut of year
• December 8-9: Fed FOMC Meeting – Final policy decision of 2026

Major Bank Forecasts for EUR/USD

Consensus summary: Most major banks forecast EUR/USD between $1.18-$1.24 by end-2026, with the median around $1.20. The spread reflects different assumptions about how aggressively the Fed will cut and how strong eurozone growth will be.

What This Means for You

If You’re Buying Euros (Selling Dollars)

The outlook suggests the euro may continue to strengthen, making dollars more expensive over time.

Strategy recommendations:

• Immediate needs (next 1-2 months): Current levels around $1.18-$1.19 are reasonable; consider buying 60-70% now
• Medium-term (3-6 months): Average in over time; buy 30% now, 40% if EUR dips to $1.17-$1.18, final 30% at market closer to need date
• Watch for dips: Any pullback to $1.16-$1.17 offers good buying opportunities given bullish consensus
• Risk management: Use limit orders at $1.17, $1.16, $1.15 to automatically buy on weakness
• Worst case: If euro reaches $1.24-$1.25, don’t wait – you’ve likely missed the ideal window

If You’re Selling Euros (Buying Dollars)

With the euro near 4-year highs and consensus expecting further gains, timing becomes critical.

Strategy recommendations:

• Act on weakness: Any spike above $1.21-$1.22 is a good selling opportunity; use rate alerts
• Don’t chase perfection: Waiting for $1.25+ carries significant risk if euro reverses
• Partial conversions: Sell 40-50% at current $1.18-$1.19 levels; hold 50-60% for potential move to $1.21-$1.22
• Watch ECB carefully: If ECB signals concern about euro strength, sell immediately as cuts could follow
• Key dates: Consider selling before June 16-17 Fed meeting if you haven’t already – rate cut could push EUR higher

For Businesses with EUR/USD Exposure

US exporters to Europe (receive EUR, convert to USD):

• Good environment – euro strength means more dollars per euro received
• Consider letting euro receivables run to capture further appreciation
• Use forward contracts selectively for downside protection below $1.16

European exporters to US (receive USD, convert to EUR):

• Challenging environment – dollar weakness means fewer euros per dollar received
• Lock in forward contracts now for H2 2026 and 2027 receivables
• Consider pricing adjustments to offset currency headwinds

US importers from Europe (pay EUR):

• Costs increasing as euro strengthens
• Lock in forward contracts for known obligations to cap costs
• Consider accelerating purchases if possible to avoid higher rates

Historical Context: Is EUR/USD Extended?

To understand if current levels offer value, it’s essential to look at historical ranges:

5-Year EUR/USD Trading Range:

• High: $1.2333 (January 2021)
• Low: $0.9589 (September 2022 – dollar peak)
• Current: $1.1830 (February 2026)
• Position: In upper half of range, but 2% below all-time highs

Historical perspective: Current levels around $1.18-$1.19 are elevated compared to the 2022-2024 period (when EUR/USD traded $0.96-$1.12), but not extreme compared to 2017-2021 when the pair regularly traded $1.15-$1.23. The euro is strong, but not at unsustainable levels given improved fundamentals.

What Could Go Wrong? (Risks to Forecasts)

Upside Risks (EUR/USD Higher Than Expected)

• Fed forced to cut more aggressively: If unemployment spikes above 5%, Fed could cut 50bps at once → EUR to $1.26-$1.28
• US recession: Sharp contraction forces emergency Fed easing → EUR to $1.28-$1.30
• Dollar reserve currency crisis: Major shift away from dollar reserves → EUR to $1.30+
• German stimulus exceeds expectations: Eurozone growth accelerates to 2%+ → EUR to $1.25-$1.27

Downside Risks (EUR/USD Lower Than Expected)

• Fed stays hawkish: Inflation reaccelerates, Fed cuts only once or not at all → EUR to $1.12-$1.14
• Eurozone recession: German stimulus fails, growth stalls → EUR to $1.10-$1.14
• ECB forced to cut: Strong euro threatens deflation, ECB resumes easing → EUR to $1.14-$1.16
• Global crisis: Major geopolitical event drives safe-haven dollar demand → EUR to $1.08-$1.12
• US exceptionalism returns: US proves far more resilient than Europe → EUR to $1.10-$1.14

Bottom Line: EUR/USD Outlook for 2026

The euro enters 2026 in a position of strength, supported by credible ECB policy, improving European growth prospects (thanks to German fiscal stimulus), and expectations for continued Fed easing. The path of least resistance remains higher toward the $1.20-$1.24 range.

However, the pace of gains is likely to be slower than 2025’s 14% surge. EUR/USD will face resistance above $1.22-$1.24 as ECB policymakers grow concerned about competitiveness, and any signs of US economic resilience or Fed hawkishness could trigger sharp pullbacks.

The smart strategy: Don’t try to time the absolute top or bottom. If you need to buy euros, current levels around $1.18-$1.19 are reasonable entry points with limited downside risk given bullish consensus. If you’re selling euros, consider taking profits on strength above $1.21, as the risk/reward becomes less favorable the higher EUR/USD climbs.

Most likely outcome for 2026: EUR/USD trades in a $1.17-$1.23 range, averaging around $1.20, with year-end levels between $1.19-$1.22 depending on how many times the Fed cuts rates.