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ING says EUR/USD has further to fall even if it is still destined to end the year closer to 1.20.

The euro to dollar exchange rate will stay under pressure until at least Q2 before recovering into year-end as it unwinds its recent oil-driven selloff, according to new research from ING.

Analysts at the lender argue the current weakness is cyclical rather than structural and under all scenarios EUR/USD should end the year above current levels, even as near-term risks remain skewed to the downside.

"All our EUR/USD scenarios end up above current spot levels by the end of the year," says ING.

The first reason is the nature of the energy shock. Unlike previous crises, ING does not expect a parallel surge in European gas prices, which were the key driver of euro weakness during earlier energy shocks.

This matters because the euro's valuation is highly sensitive to the Eurozone's terms of trade.

"First, our expectations are that the shock in oil won't be matched by a rise in gas prices… This means a more contained impact on the eurozone terms of trade."

The second pillar of the bullish medium-term view is U.S. monetary policy.

ING expects the Federal Reserve to proceed with rate cuts later this year, even if higher energy prices create a temporary inflation bump.

That combination of a contained Eurozone shock and easing U.S. policy underpins a forecast for EUR/USD to resume its broader uptrend.

However, the path higher is not expected to be linear.

In the near term, ING says oil prices will remain the dominant driver, outweighing interest rate differentials.

This creates scope for further volatility and even renewed downside during the second quarter.

"In the shorter run (2Q), rate differentials should remain a secondary EUR/USD driver relative to oil prices… we expect EUR/USD to trade back around 1.10 in 2Q before recovering."

ING has trimmed its forecasts modestly in response to the conflict, lowering its 2026 projections by around 2%, but maintains that the broader trend remains intact.

The bank's baseline scenario sees EUR/USD recovering to 1.16 by the end of the second quarter, before extending gains into year-end.

"Our new baseline scenario… expect a return to 1.16 by the end of 2Q and a full resumption of the multi-quarter USD downtrend… with a target of 1.20."