Latest exchange rates:
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GBP/EUR — 1.1389
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GBP/USD — 1.3371
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EUR/USD — 1.1740
Euro to Dollar Forecast: Market Expectations for 2026
Nomura notes that in recent months markets have gradually begun to factor in the possibility of future rate hikes across several G10 economies. This shift has already provided support for currencies such as the Australian dollar, New Zealand dollar, and Swedish krona.
The bank’s base case still assumes that the ECB will keep interest rates unchanged in 2026. However, analysts stress that if investors start to price a more hawkish policy path, the euro could gain additional momentum.
At present, expectations for ECB rate cuts have largely disappeared from market pricing. The key question now is whether markets will begin to believe in an actual rate hike cycle in the euro area. Interest in this scenario increased following comments from ECB Governing Council member Isabel Schnabel, who said she was comfortable with market expectations pointing toward potential tightening.
Nomura views this outcome as a positive but non-core scenario for EUR/USD. As a historical reference, analysts point to the 2010–2011 period, when the ECB was preparing to raise rates while the Federal Reserve remained on hold. During that phase, EUR/USD rose by around 15%, although the euro did not emerge as a top performer among G10 currencies.
A repeat of such a move in 2026 is considered unlikely. Economic growth in the euro area remains subdued, while inflation is close to target, limiting the scope for aggressive tightening. Even in an alternative scenario, Nomura estimates that markets might price in around 50 basis points of ECB rate hikes, which would translate into only moderate euro gains—especially if expectations for Fed rate cuts do not strengthen at the same time.
Another constraining factor is euro valuation. The real effective exchange rate (REER) already looks relatively elevated by historical standards, while the euro area’s current-account surplus appears to have peaked without a meaningful increase in portfolio inflows.
In addition, speculative positioning in EUR/USD is already moderately long, limiting the scope for a sharp rally. Nomura argues that a sustained move above 1.20 would require deeper and more structural shifts in investor expectations.
Conclusion: the euro could find support in 2026 if policy divergence between the ECB and the Fed widens. However, Nomura expects any EUR/USD upside to be limited and volatile, with ECB tightening remaining a tail-risk scenario rather than the central case.