Euro weakens below 1.1750 as hotter US inflation bolsters US Dollar
EUR/USD fell below 1.1500 after hotter-than-expected US CPI data reignited Fed rate hike expectations, strengthening the USD. The breakdown of key support at 1.1750, a level that had held since April, signals a shift in sentiment. This move comes despite consensus forecasts pointing to a recovery, widening the gap between spot and the median Dec-26 target of 1.2200. The divergence has been a recurring theme in our recent research, highlighting market skepticism toward bullish EUR forecasts.
Where it sits in our coverage
Our consensus EUR/USD target for Dec-26 sits at 1.2200 (median across 8 firms), with Deutsche Bank and Goldman at the upper bound (1.2500) and Morgan Stanley at the lower (1.1600). The current spot at 1.1500 now trades 5.7% below the consensus median, exceeding the 3.7-3.9% gaps we've highlighted in recent notes. This breakdown below 1.1750 suggests the market is pricing in a more bearish outlook than the average forecaster.
How firms align
Morgan Stanley stands out as the most bearish, targeting 1.1600 by Dec-26, which aligns closely with the current selloff narrative. In contrast, Goldman and Deutsche Bank at 1.2500 represent the bullish extreme, betting on a significant EUR recovery. JPMorgan and ING, with targets of 1.2000 and 1.2200 respectively, sit near the consensus but are now above spot by over 4%.
What the data shows
Recent forecast revisions from May 5 show no major updates, but the persistent gap between spot and consensus has been a focus of our published research. Our note '/research/eurusd-consensus-divergence-may-2026-20260512-2102' discusses the 3.77% divergence, which has now widened further. The inflation data underscores the risk that US rates stay higher for longer, challenging EUR bullish forecasts.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01EUR/USD broke below 1.1750 support, now at 1.1500, as hot US CPI fuels USD strength.
- 02Consensus Dec-26 target of 1.2200 is 5.7% above spot; such gaps historically signal mean reversion but not always immediate.
- 03Fed rate path uncertainty remains key catalyst; next US CPI or Fed meeting could extend USD rally.
- 04Morgan Stanley's 1.1600 Dec-26 target is the most aligned with current market direction.
Market implications
Watch for further USD gains if US data continues to surprise to the upside. The 1.1400 level, a prior support from March, is the next downside target. A break below that could open the door to parity discussions, especially if the Fed signals a higher terminal rate. Our consensus median, meanwhile, suggests eventual recovery, but timing is uncertain.
Risks to this view
This view is invalidated if upcoming US data softens significantly, allowing the Fed to pause. Also, a sharp deterioration in risk sentiment could boost USD further, but a surprise dovish Fed pivot or a breakthrough in US fiscal talks could reverse USD gains. Any EUR-positive catalyst, such as stronger Eurozone data, would narrow the gap.
Sentiment by currency
USD+EUR-JPY~GBP~Composite USD score: +0.65
Sources & References
How we cover this story
Other coverage on this pair
Euro: Limited downside against US Dollar with ECB hike message – MUFG
ECB's continued hike messaging supports EUR/USD floor around current levels; limited downside signals reduced momentum for USD longs.
Euro: Gains capped against US Dollar by Fed story – ING
Fed rate expectations remain supportive of USD strength, structurally limiting EUR/USD upside despite recent euro resilience.
EUR/USD Price Forecast: 20-day EMA remains key barrier as Iran uncertainty persists
Euro slips as Hormuz firefight revives US Dollar demand
Geopolitical risk in Persian Gulf elevates safe-haven demand, likely to support USD/JPY parity and cap EUR/USD downside until tensions clarify.
Bank desks on this topic
FX Daily: Iran fall-out coming home to roost in EUR/USD
https://think.ing.com/articles/fx-daily-iran-fall-out-coming-home-to-roost-in-eur-usd/
FX Daily: Iran fall-out coming home to roost in EUR/USD
https://think.ing.com/articles/fx-daily-iran-fall-out-coming-home-to-roost-in-eur-usd/
FX Daily: Iran fall-out coming home to roost in EUR/USD
EUR/USD was hit in March on expectations that the stagflationary shock from Iran would resonate more in Europe than the US. The inflationary effects have been plain for all to see, but this week's release of European PMIs warns that the stagnationary effect is just starting to la
Morgan Stanley: How Much Will FX Hedging Flows Boost EUR/USD? - eFXdata
Morgan Stanley: How Much Will FX Hedging Flows Boost EUR/USD? eFXdata
Cross-firm research
EUR/USD Trades 3.16% Below Dec-26 Consensus as 18 Firms Hold 1.20 Median
With spot at 1.1621 and the 18-firm median Dec-26 target at 1.20, EUR/USD sits 3.16% below consensus—a gap that demands explanation.
EUR/USD Trades 3.2% Below Dec-26 Consensus as Targets Cluster Near 1.20
Spot at 1.1612 sits 3.2% below the 18-firm median Dec-26 target of 1.20, exposing a consensus that remains structurally bullish EUR despite the pair's failure to close the gap.
EUR/USD Trades 4% Below Dec-26 Consensus: What the Gap Reveals
EUR/USD spot at 1.1711 sits 4.01% below the eight-firm median Dec-26 target of 1.22, exposing a structural tension between macro conviction and current tape.