EUR/USD to reach 1.20 level as UBS forecasts weaker dollar ahead - Investing.com Nigeria
UBS's recent call for the EUR/USD to approach the 1.20 level is gaining traction as it forecasts a weaker dollar, supported by broader tightening across global monetary policies. This perspective aligns with a growing consensus among several major banks that expect the euro to appreciate against the dollar over the next year.
What the desk is arguing
The macroeconomic landscape is tilting in favor of the euro, as UBS anticipates that a weakening dollar will push EUR/USD towards the 1.20 threshold. This reflects a sentiment that the current dynamics in interest rates and inflation will support further euro gains, especially as growth in the Eurozone is expected to outperform that of the US.
Moreover, our internal consensus suggests a median target of 1.22 by December 2026, with multiple banks adjusting their forecasts upward recently. This underscores the growing belief that the euro is undervalued relative to the dollar, contrary to any notion that the dollar may have room to strengthen significantly in the near term.
Where it sits in our coverage
Our median consensus target for EUR/USD currently sits at 1.22, showing a range from 1.1700 to 1.2500 among firm forecasts for December 2026. This optimism is well-aligned with UBS's outlook, suggesting a closer convergence in expectations around euro appreciation against the dollar going forward.
Looking at individual forecasts, notable firms like JPMorgan, Goldman, and Deutsche Bank corroborate this bullish stance on the euro. Their targets for December 2026 are:
- **JPMorgan**: 1.2000 - **Goldman**: 1.2500 - **Deutsche Bank**: 1.2500
How other firms see it
While UBS's forecast for a weaker dollar is gaining traction, some firms maintain a more cautious approach. **BofA** expresses views that suggest a contrary position, predicting a weaker EUR/USD target of 1.2200 by December 2026.
Other firms have also recently adjusted their expectations up, focusing on the strength of the Eurozone relative to the US, showing that the markets are gradually pricing in this potential shift in currency dynamics. This creates a nuanced landscape where the outlook remains optimistic; however, divergent views persist within the market.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01UBS predicts EUR/USD to reach 1.20, citing a weaker dollar.
- 02Major banks align in bullish forecasts for the euro, with December targets generally above 1.20.
- 03Caution exists among some firms, indicating a split in market sentiment.
Market implications
If the UBS forecast materializes, we may see increased volatility in currency markets as traders adjust positions in anticipation of a stronger euro. A sustained move towards 1.20 or higher could have significant effects on US export competitiveness and inflation dynamics, potentially influencing further monetary policy decisions from the Federal Reserve.
Risks to this view
Risks to the bullish EUR/USD outlook include unexpected shifts in US economic data that may prompt a dollar rally, geopolitical tensions that could cause market instability, and diverging monetary policy paths that might favor the dollar unexpectedly. Additionally, any signs of stagnation or recession in the Eurozone could counteract the anticipated strength of the euro.
Sources & References
How we cover this story
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Cross-firm research
EUR/USD Trades 3.87% Below Consensus: What the Gap Reveals
EUR/USD spot at 1.1727 sits 3.87% below the eight-firm median Dec-26 target of 1.22, exposing a structural divergence that demands explanation.
EUR/USD Consensus at 1.22 While Spot Sits 3.87% Below
Eight sell-side firms hold a median Dec-26 target of 1.22 for EUR/USD while spot trades at 1.1727, a gap that demands explanation.