UBS kept its EUR/USD forecasts at 1.23 for end-2025 and 1.18 for 2026, citing Fed cuts - investingLive
UBS's decision to maintain its EUR/USD forecasts at 1.23 for end-2025 and 1.18 for 2026 places them in a bullish stance on the euro, largely driven by anticipated Federal Reserve rate cuts. This perspective aligns with a broader sentiment among certain firms, many of which project gradual appreciation of the euro against the dollar in the coming years. However, UBS's projections are notably higher than what the consensus suggests, indicating a potential divergence in views on the euro's strength.
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:
- JPMorgan: 1.2000
- Goldman: 1.2500
- Deutschebank: 1.2500
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.
- BofA: 1.2200
- MorganStanley: 1.1600
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01UBS projects a stronger EUR/USD, with significant targets set for 2025 and 2026.
- 02The consensus currently expects a modest euro appreciation, indicating divergence of views within the market.
- 03Several firms maintain lower target levels, reflecting a more cautious stance given current macroeconomic conditions.
Market implications
The divergence in EUR/USD projections signals that market participants may be polarized about the euro's prospects against the dollar. As firms adjust their forecasts in reaction to economic indicators and Fed policy hints, volatility could pick up in the EUR/USD pair. A stronger euro forecast from UBS could trigger shifts in positioning, should Fed cuts tighten spreads favorably.
Risks to this view
Key risks to the EUR/USD projections include shifting economic conditions, unexpected Fed policy changes, and geopolitical instability in the Eurozone. Additionally, inflation dynamics in Europe or the U.S. could cause re-evaluations of growth projections and consequently impact currency valuations.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
Sources & References
How we cover this story
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