What the desk is arguing
UBS's consistent forecasts for EUR/USD, set at 1.23 for 2025 and 1.18 for 2026, tout a future where Fed rate reductions bolster the euro. This aligns with a narrative emerging from the market that suggests lower U.S. rates could enhance the euro's appeal as investors seek better yields in Europe.
In comparison, the current spot at 1.1500 reveals a significant gap between UBS's views and those of the consensus, which anticipates the euro to only reach 1.22 by the end of 2026. The desk implicitly posits that if Fed cuts are stronger or more aggressive than currently forecasted, a stronger euro becomes a feasible scenario, countering a more tempered view held by various firms that have issued lower forecasts for EUR/USD in the same timeframe.
Where it sits in our coverage
Our internal consensus target for EUR/USD is set at 1.2200 by December 2026, sitting at a range of 1.1700 to 1.2000. This contrasts with UBS’s more optimistic end-of-2026 target of 1.18, suggesting that while some firms are expecting marginal strength, they remain cautious compared to UBS's bullish outlook.
Several firms have set their Dec-26 targets close to the consensus, indicating a more conservative view. Notably:
This demonstrates a mix of optimism and caution among different firms. Those targeting higher levels point towards stronger euro performance, while others echo a more restrained sentiment attributable to current market conditions.
How other firms see it
Several banks share a more cautious outlook for the euro compared to UBS’s projection. MorganStanley and BofA specifically indicate more tempered targets, maintaining levels in line with the consensus but falling short of UBS's forecasts.
This suggests a divided market where, while some factors may support the euro's strength, prevailing bearish sentiment among certain institutions highlights unresolved transaction and geopolitical risks impacting EUR/USD outlook.