A sharp decline in the US dollar (USD) in the first half of 2025 could push investors towards broader portfolios, although geopolitical and Federal Reserve risks may keep the currency unstable. Analysts now expect EUR/USD to swing wide in 2026, trimming the 12-month target to 1.18 while maintaining a modest bullish bias, Rabobank FX analyst Jane Foley said.
Geopolitics drives EUR/USD volatility
“The severity of the US dollar’s decline in the first half of 2025 could encourage investors to favor a more diversified portfolio going forward into 2026. However, issues related to trade tensions, geopolitics, Fed independence, and US growth and inflation risks are expected to weigh on the value of the dollar next year.”
“Developments in all of these themes have the potential to unnerve and reassure investors. With this in mind, our central view is that EUR/USD is likely to trade in wide volatile ranges in the coming year, with only a modest upward bias.”
“We have removed EUR/USD 1.20 from our 12-month forecast table and instead have a one-year forecast at 1.18, with the slight uptick in the trend reflecting risks to the US dollar from the FOMC and the possibility that the market could speculate on the first ECB rate hike of the cycle by the end of next year. We have maintained our one-to-three-month forecast at EUR/USD 1.16.”
