The euro is set to strengthen significantly against the U.S. dollar over the coming year, according to a new forecast by Danske Bank. Analysts at the Danish financial institution expect the euro to rise from its current level of $1.1340 to $1.22 within 12 months.
Rate Cuts May Weaken the Dollar
The projected appreciation of the euro is closely linked to anticipated actions by the U.S. Federal Reserve. Danske Bank predicts that the Fed will reduce interest rates by 125 basis points by June 2026. The bank attributes this expected policy shift to economic pressures stemming from trade tariffs implemented under former President Donald Trump.
The analysts believe the first of these rate cuts could begin as early as next month.
Tariff Clarity Expected Soon
Danske Bank says the Federal Reserve will likely have a clearer picture of the global trade landscape by June and July. Specifically, the Fed should better understand the final scope of tariffs on Chinese goods and other reciprocal trade measures. This improved visibility is expected to influence the central bank’s monetary policy decisions.
No Immediate Rate Cut Decision
Despite expectations of future cuts, Danske Bank does not expect the Federal Reserve to lower rates at its upcoming policy meeting. The bank’s analysts believe the Fed will keep interest rates steady this Wednesday and avoid making any immediate commitments to future reductions.
Summary
Danske Bank projects that the euro will strengthen to $1.22 within the next year, driven by potential U.S. interest rate cuts. These cuts are expected in response to the economic effects of past tariff policies. While the Fed is not likely to act immediately, a shift in U.S. monetary policy could begin soon, which may lead to a weaker dollar and a stronger euro.
Related topics:
