The single European currency is striving to soar and remain at the top. Sometimes it asserts its strength, but at times it lacks momentum. Nevertheless, UBS bank analysts expect that the euro will strengthen against the dollar and reach a peak near 1.2500 by 2026.
In a recent currency market review, UBS experts noted that the US trade war with the rest of the world, launched this year, “may lose its significance by mid-2026.” This could happen if domestic politics and the dynamics of the midterm elections shift in favor of the US economy and the dollar.
At the same time, EU authorities are expected to step up fiscal support. This scenario is positive for the European economy, as it would help close the gap with the United States.
As for monetary policy, UBS expects the Federal Reserve to resume rate cuts in September 2025. The regulator may lower the federal funds rate to 3% by April 2026. “The easing cycle is nearing its end, and the outlook for monetary policy... will become more neutral by mid-2026,” the analysts add.
Meanwhile, most other central banks also intend to keep interest rates at neutral levels to reduce policy divergence.
According to UBS forecasts, the EUR/USD pair will approach its fair value of around 1.2500 in 2026. However, the pair is unlikely to rise above that level, the analysts emphasize. In the second and third quarters of 2026, the EUR/USD pair may remain in the 1.2300 range, the experts add.
The euro will also be supported by the adoption of a fiscal package in Germany and increased defense spending in EU countries. However, UBS warned of lingering risks, including uncertainty in trade policy, energy costs, and the US fiscal deficit. The latter, experts said, is “the greatest challenge to achieving more stable exchange rates in the second half of 2026.”
