Euro-Dollar Tipped to Tread a Path Back to 1.14
- Written by: Gary Howes
Image © European Central Bank.
Currency analysts at UBS see the consensus trade fizzling out early in 2026.
The consensus amongst analysts - and market participants, according to futures curves - is that the euro will rise steadily against the dollar next year.
Analysts at the investment banking arm of UBS think the euro has scope to rally in the early stages of the year, before fading again.
This is consistent with a time-honoured template of year-ahead consensus predictions peaking early in the year.
The euro has rallied steadily through 2025 as markets saw the European Central Bank (ECB) ending its interest rate cutting cycle well ahead of the Federal Reserve.
For this impetus to extend, the ECB must retain a 'hawkish' bias, particularly if the Fed doesn't cut as far as markets expect.
"Looking a bit further ahead, we take a cautious view around the hawkish repricing in ECB expectations, in part triggered by comments by Board Member Schnabel," says Alvise Marino, Strategist at UBS in Switzerland.
This week saw Schnabel, a highly influential member of the ECB's Governing Council, signal the next move at the central bank would be to raise interest rates.
Traders have since moved to price out any further rate cuts at the ECB, with money markets now showing participants are of the view the next move will be to raise interest rates.
Tactically, this can support the euro to dollar exchange rate over the coming weeks, says UBS:
"The upside pulse of the repricing in We can imagine the EUR-supportive impact extending ahead of the ECB meeting next week, given impending forecast revisions."
The expectation is that the euro rally can push euro-dollar to 1.20 in the first quarter.
However, analysts "are more sceptical medium-term and maintain a 1.14 EURUSD target by end-2026."
This as disinflationary forces become more apparent, it could serve to be "sceptical of lasting hawkish prospects for ECB policy," says Marino.
