Euro-to-Dollar Consensus Forecast: Too Expensive for Now, But Gains Further Out

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Euro-dollar may have risen too far too fast, but bigger gains could lie ahead.

Pound Sterling Live's survey of investment bank forecasts shows that EUR/USD above 1.1650 leaves it looking too expensive at this stage of the game.

Our Q2 survey of euro-dollar forecasts has been released, and it offers a solid grounding for those watching this exchange rate in the coming quarters.

The survey of tier-1 investment bank predictions allows us to form an average target that we think offers a rational grounding for those with upcoming payments. The takeaway from the latest exercise - which is available on request from our partners at Horizon Currency - is that the recent rebound in euro-dollar might have gone too far.

Indeed, the consensus looks for a lower level in the exchange rate in the coming weeks before a more concerted rebound later in the year.

That's in keeping with the view that near-term geopolitical risks are elevated, but that monetary policy divergence will ultimately determine direction in the later months.

"Against the downward revisions for Eurozone growth, we continue to expect that EUR/USD will struggle to trend towards the 1.20 level, counter to the consensus expectation," says Jane Foley, Senior FX Strategist at Rabobank.

Rabobank says the euro could suffer a setback presently, as the Iran war could be about to enter a concerning phase.

With Iran and the U.S. at something of an impasse, Rabobank's economists now expect the Strait to be closed for another two to four weeks and see the risk of an escalation to achieve a de-escalation as very high.

"An escalation could bring another surge in the value of the USD," says Foley.

Those investment banks that continue to look for euro-dollar to trend higher and ultimately breach 1.20 argue that relative interest rate expectations are a key reason to expect upside.

Bets for the Fed to raise rates are subdued, which is not the case for the European Central Bank.

"We now anticipate the ECB to deliver one rate hike in June and another in July 2026, bringing the deposit rate to 2.50%, which aligns with market expectations," says a note from Danske Bank.

"Across the Atlantic, the Federal Reserve remains cautious. Lower-than-expected inflation and signs of continued softening in the US labour market continue to pave the way for rate cuts later this year," it adds.

Looking at the consensus survey data, the trend is for steady gains but there is some interesting divergence with Crédit Agricole expecting some decent declines. To the topside, levels of 1.22 are routinely predicted.

For a more detailed look, please feel free to request your copy of the report from our partners Horizon Currency, here.