Euro-to-Dollar Week Ahead Forecast: Strong Start to Fade

🎯 EUR/USD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

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The euro has made a firm start to the new week against the dollar, but the rebound could soon be faded.

The euro to dollar exchange rate (EUR/USD) rose to 1.1868 after opening the week at 1.1809, rebounding from last Friday’s low at 1.1765.

The recovery has been driven largely by renewed selling pressure on the dollar, linked in part to a sharp fall in USD/JPY as the yen found support following a decisive election victory for Japan’s Sanae Takaichi.

That dynamic highlights the technical nature of the dollar selloff underpinning the euro’s bounce, rather than a fresh shift in euro-specific fundamentals.

Over a longer horizon, the broader setup continues to argue for a stronger euro against the dollar in the months ahead.

“We stick to our view of continued dollar weakness, driven primarily by structural current-account outflows, as mentioned above, which should allow for further gradual depreciation,” says Julius Baer.

“A continuation of Fed policy easing reduces the dollar’s favourable interest rate differentials against peers,” the bank adds.

Despite that constructive medium-term backdrop, near-term risks suggest the euro’s strong start to the week may struggle to extend.

Seasonal patterns are one headwind, with February historically proving a challenging month for EUR/USD.

“EUR/USD usually falls in February,” warns Martin Miller, a market analyst at Reuters.

“It is not usually a good idea to go long EUR/USD in February and that will likely be the case in 2026 if key technical support gives way,” he adds, pointing to a tendency for the dollar to find firm support during the month.

🎯 EUR/USD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

The calendar also presents a heavy test, with a packed week of U.S. economic data at a time when market positioning remains skewed against the dollar.

The monthly payrolls report and inflation data are the two marquee releases, and any deviation from consensus expectations could trigger a sharp repricing.

“The payrolls report for January will be the highlight, as we also get the benchmark payrolls revisions,” says Kathleen Brooks, an analyst at XTB.

“The revisions data could lower the March 2025 payrolls data by 863k jobs, which would suggest several months of negative payrolls in 2025, and would paint a much darker picture of the US labour market,” she adds.

Money market pricing derived from the OIS curve shows investors positioned for two Federal Reserve rate cuts this year, leaving scope for expectations to shift.

Brooks notes that softer data could see markets price in additional easing, a development that would typically weigh on the dollar.

That risk is counterbalanced by the inflation report, where upside surprises could curb expectations for an accelerated cutting cycle.

“Annual and core inflation is expected to moderate slightly to 2.5% for January. However, the risks are to the upside, as January tends to see hotter inflation due to seasonal price increases,” Brooks says.

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