UBS lowers EUR/USD forecast to 1.20 for 2026 on political risks - Investing.com

What the desk is arguing

UBS has cut its EUR/USD forecast to 1.20 by end-2026, a move that stands out as one of the most bearish among major banks. The rationale centers on unresolved political risks in the euro zone, including fiscal fragmentation and potential policy instability, which the bank believes will cap any sustained euro appreciation.

This view implicitly rejects the consensus narrative that EUR/USD will grind higher toward 1.22 on the back of a narrowing rate differential and an eventual turn in the dollar cycle. UBS appears to be giving more weight to structural headwinds in the euro area than to cyclical tailwinds from a weaker USD.

Where it sits in our coverage

Our internal consensus for EUR/USD at Dec-26 stands at 1.2200 (range 1.1600–1.2500), with UBS's new 1.20 target landing well below that median. The bank's forecast sits in the lower third of the distribution, closer to the bearish outliers like Morgan Stanley (1.16) rather than the more bullish firms.

Specific firm targets for Dec-26 from our per-firm coverage:

• Goldman: 1.2500
• Deutsche Bank: 1.2500
• MUFG: 1.2400
• ING: 1.2200
• BofA: 1.2200
• Barclays: 1.2100
• JPMorgan: 1.2000
• Morgan Stanley: 1.1600

UBS's 1.20 aligns with JPMorgan (1.20) and sits just below Barclays (1.21), making it a relatively bearish call within the range.

How other firms see it

Most firms are more bullish on EUR/USD than UBS, with the consensus median at 1.22 for Dec-26. Goldman and Deutsche Bank are the most bullish at 1.25, expecting a stronger recovery. Morgan Stanley stands as the lone major bear at 1.16, even more negative than UBS, while ING and BofA cluster around 1.22.

Firms aligned with UBS's bearish tilt: - Morgan Stanley: target 1.16, more bearish than UBS - Barclays: target 1.21, slightly more bullish but still below consensus

Firms contrary to UBS (more bullish): - Goldman: 1.25 - Deutsche Bank: 1.25 - MUFG: 1.24

The majority of the Street remains above 1.20, suggesting UBS's call is a distinct minority view that will require further deterioration in euro-area political dynamics to materialize.