Euro: Downside risks for EUR against US Dollar – Rabobank

Rabobank's Senior FX Strategist Jane Foley discusses EUR/USD trading near its yearly lows despite consensus forecasts that had expected the pair around 1.18–1.20 in late 2026. Foley argues markets have overpriced Fed tightening and now see a 70% chance of an October rate hike after September’s move. Rabobank forecast EUR/USD at 1.16 on a 3‑month horizon and 1.14 on a 1‑month view, citing Iran war risks and upcoming French elections.

Fed repricing supports Dollar

"In stark contrast to that expectation, the market now sees around a 70% chance of an October rate rise following on from the 25-bps hike announced earlier this month."

"In our view, the EUR’s ability to draw strength from the ECB’s hawkish tone has been thwarted by various factors."

"Our expectation that EUR/USD will return to 1.16 on a 3 month view reflects the Rabobank house view that the market has priced in too much Fed policy tightening."

"That said, we retain the view that the EUR will struggle to find upside momentum during the duration of the Iran war and have revised down our 1 month forecast to 1.14 from 1.16."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)