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The single currency sits on the cusp of fresh lows against the dollar, with a Swiss private bank now doubting its own call for a recovery.
The euro's hopes of a meaningful recovery against the dollar before year-end are fading, with strategists conceding their own three-month forecast now looks "ambitious".
The euro's sharp repricing on French political risk "appears to be halted for now," says David Alexander Meier of Julius Baer, the Swiss private bank, in its latest Research Weekly, "longer-term USD weakness remains our base case, but the path to a EUR recovery may be tedious."
The Euro to Dollar exchange rate fell to 1.1113 this morning, matching the 2026 low set on 14 October, and trades at 1.1126, 0.8% below its 21-day moving average at 1.1210:
Above: EUR/USD at daily intervals with the 21-day moving average.
The euro is weaker against sterling too, with the Pound to Euro rate printing a fresh 17-month high at 1.1962 this morning ahead of Chancellor John Healey's Budget.
EUR/USD came under notable pressure in the second half of September as a massive widening of French government bond spreads over German Bunds, the favoured measure of French stress, reflected unease over the country's political and fiscal outlook.
The euro has largely traded sideways through October even as those spreads kept widening, which Meier reads as a sign that "investors reacted decisively when political risks first came into focus".
Euro risk reversals, which measure the premium investors pay for protection against a falling currency, swung sharply in favour of downside protection before demand for additional hedging moderated, according to Meier.
"A similar pattern is visible in speculative positioning data, suggesting that investors have now moved into a wait-and-see stance. Against this backdrop, our three-month EUR/USD target of 1.15 looks ambitious," says Meier.
Fed and AI Inflows Keep the Dollar Supported
EUR/USD faces a dollar that Julius Baer says "remains supported by the hawkish US Fed policy bias and artificial intelligence (AI) capital inflows."
EUR/USD will be exposed to tonight's Federal Reserve decision at 18:00 London time, when investment bank analysts expect the Fed to hold rates while signalling further hikes are coming.
The euro can expect little relief from next week's US midterm elections, which Julius Baer expects to bring "substantial political news flow but only a limited market impact".
Washington's policy agenda is unlikely to be constrained by the result, according to Meier, as the president retains considerable scope to govern through executive action and the most consequential legislation, including the 'Big Beautiful Bill', has already been enacted.
The Dollar Must Weaken for EUR/USD to Recover
A longer-term EUR/USD recovery rests on the dollar weakness Julius Baer still expects, "we continue to expect longer-term US dollar weakness, but a euro recovery could now prove more difficult," says Meier.
EUR/USD would gain should the AI boom turn to bust, a scenario Crédit Agricole ranks as the dollar's biggest downside risk in 2027 as it would free the Fed to cut rates.
EUR/USD forecasts from other houses span a fall to 1.10 and a rally to 1.25:
• UBS: 1.16 in one month, 1.20 in 12 months
• Westpac: 1.14 in three months, 1.18 in six months
• Nomura: 1.25 in 12 months
• Crédit Agricole: 1.13 in three months, 1.17 in 12 months
• Danske Bank: 1.10 at six to 12 months, after a downgrade
• Nordea: 1.10 by year-end, cut from 1.14
• ING and KBC: 1.11 in one month
Julius Baer Turns Bearish on EUR/GBP
The euro's outlook against sterling has also dimmed at Julius Baer, which has downgraded EUR/GBP to bearish, a call that favours further gains in the Pound to Euro rate, with EUR/GBP at 0.8368, equivalent to 1.1950 in GBP/EUR.
The euro has a backer in Crédit Agricole's FAST FX model, which bought EUR/GBP on Monday with a take-profit at 0.8467, equivalent to 1.1811 in GBP/EUR.
The euro's next test against sterling comes with the Budget at 12:30 today, which Pound Sterling Live's modelling flags as the event most capable of forcing a pullback in GBP/EUR towards its 21-day moving average.
EUR/USD needs a daily close below 1.1113 to confirm a fresh 2026 low, with tonight's Fed the likely trigger, while a recovery must first clear the 21-day average at 1.1210.
