UBS raises EUR/USD forecast on potential Fed rate cuts - Investing.com
UBS's revision of the EUR/USD forecast reflects a broader sentiment that hinges on the anticipated Federal Reserve rate cuts. As the Fed is expected to turn accommodative, the pair's projected strength aligns with this dovish pivot.
What the desk is arguing
The desk posits that the recent upward revision in UBS's EUR/USD forecast indicates a growing consensus that Federal Reserve rate cuts are imminent, which would likely benefit the euro against the dollar. This view supports a medium-term bullish trend for EUR/USD, as lower U.S. interest rates would decrease the attractiveness of holding dollars, potentially driving more investors towards euro-denominated assets.
Furthermore, the current spot price of 1.1500 is well below the consensus target of 1.1800 for March 2026, suggesting the market may underestimate the euro's potential strength in a shifting macroeconomic environment. The counterfactual considered is that should the Fed maintain higher interest rates longer than expected, the euro could struggle to gain ground despite the revisions, but this scenario seems increasingly less likely given recent economic signals.
Where it sits in our coverage
Currently, our consensus target for EUR/USD is set at 1.1800 for March 2026, with a range spanning from 1.1700 to 1.2000 across various firms. This demonstrates a general agreement among analysts that EUR/USD has room to appreciate, albeit some divergence exists as seen in individual bank targets.
Specific firm targets show a reasonable spread, with JPMorgan and Goldman Sachs projecting EUR/USD at 1.1800 and 1.2100 respectively for March 2026, while Morgan Stanley has a slightly higher expectation at 1.2000. This divergence reflects how certain banks might view macroeconomic conditions differently, leading to varying forecasts.
- JPMorgan: 1.1800
- Goldman Sachs: 1.2100
- Morgan Stanley: 1.2000
How other firms see it
Various firms echo the optimistic sentiments presented by UBS, aligning closely with the upgraded forecast for EUR/USD. The stance across the board suggests a bullish outlook, reinforcing the view that the euro may strengthen if U.S. monetary policy shifts towards cuts.
How firms align with this view
Aligned with the desk view
Key takeaways
- 01UBS raises its EUR/USD forecast based on anticipated Fed rate cuts.
- 02Current spot at 1.1500 contrasts with a consensus target of 1.1800 for March 2026.
- 03Most analysts project continued strength for the euro against the dollar.
Market implications
Should the expected Fed rate cuts materialize, a significant shift in capital flows could favor the euro, increasing demand and supporting further appreciation against the dollar. This adjustment will be crucial for FX strategies in the coming months.
Risks to this view
The primary risk to this outlook hinges on potential macroeconomic data releases that could indicate a stronger-than-expected U.S. economy, prompting the Fed to hold off on rate cuts. Additionally, geopolitical tensions or unexpected developments in the Eurozone could undermine the euro's strength.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bearish | 1.1200 |
ANZ | Bearish | 1.1400 |
UOB | Bullish | 1.1565 |
Sources & References
How we cover this story
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