Bank of America now expects EUR/USD to reach 1.15 by the end of 2026 and 1.20 by the end of 2027, even as the euro sits at its weakest level since late July after the dollar's fourth straight daily gain. Hot US data and a weak Treasury auction have pushed traders to raise the odds of an October rate hike.
The euro fell for a fourth straight session on Thursday, touching its weakest level since late July around $1.1420, as the dollar rode a wave of Treasury yield spikes to two-month highs. The dollar index cruised around 101.09 after touching an intraday peak of 101.20.
Hot data and Fed rhetoric fuel the rally
A blowout US manufacturing reading and a poorly received $70 billion Treasury auction drove five-year yields past 5% for the first time since 2007. Dollar momentum was further fueled by hawkish rhetoric from Federal Reserve Governor Michael Barr.
As a result, money markets now discount nearly a 70% probability of an October rate increase, up from 50% a week earlier, according to CME FedWatch data. That repricing has left the euro pinned down by widening transatlantic yield differentials.
Energy costs add to the euro's burden
Rising oil prices have compounded the pressure. Brent crude settled above $103 a barrel after Iranian President Masoud Pezeshkian said Tehran would not back down under US naval blockades. The jump in energy costs threatens renewed cost-push inflation that could complicate the European Central Bank's tightening path.
BofA still sees the euro climbing by year-end
Despite the current slide, Bank of America expects the euro to reach 1.15 against the dollar by the end of 2026 and 1.20 by the end of 2027. Its 2026 target sits just below the Bloomberg consensus median forecast of 1.17, while its 2027 target of 1.20 sits slightly above the consensus median of 1.19.
The bank expects the dollar to finish the year near current levels against most G10 currencies, excluding the yen, before resuming modest depreciation in 2027. Bank of America published the outlook in a September 8 report titled "G10 FX back-to-school: dollar unloaded," alongside revised forecasts for Antipodean and Nordic currencies.
Whether that projected turn arrives on schedule now depends on how long the current rate-hike repricing persists.
Sources: Forex News, Forex News
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