Rabobank expects EUR/USD to trade within a broad and uneven range throughout 2026. Markets will need to digest shifting central bank expectations, mixed macroeconomic data, and political risks on both sides of the Atlantic.
The bank notes that the Federal Reserve’s rate cut on December 10, accompanied by rhetoric that proved “not as hawkish as the market had feared,” exerted moderate downward pressure on the US dollar.
As a result, EUR/USD has moved toward the upper end of its recent trading range but remains below the September high of 1.1919.
“The market expects the Fed to continue cutting interest rates into 2026,” Rabobank notes.
At the same time, speculation has intensified that the European Central Bank could begin raising rates toward the end of next year.
“Interest rate differentials, confidence in the Fed, tariff issues, geopolitics, and political factors in both the US and Europe will shape the risk profile for the EUR/USD outlook,” the bank says in its report.
For this reason, Rabobank believes that 2026 will be defined by elevated volatility rather than a sustained directional trend.
The bank diverges from consensus forecasts that project EUR/USD rising to 1.20 by the third quarter of 2026.
“We have removed the 1.20 level from our forecast table in favor of a more choppy and uneven trading profile,” the analysts write, while still allowing for a modest upside bias toward the end of next year.
Rabobank also notes that the White House could apply pressure on the Fed to pursue a more accommodative policy stance.
“We expect the FOMC to announce three additional rate cuts next year,” the bank states, adding that this scenario is largely reflected in current market pricing, thereby limiting the scope for further dollar weakness.
Potential sources of support for the dollar include a more resilient US economy and continued investment inflows.
On the euro side, Rabobank reiterates its view that the ECB’s easing cycle is likely complete, with the next policy move expected to be a rate hike.
“Absent significant downside shocks to Eurozone growth, rate-hike expectations are likely to gain traction toward the end of 2026,” the report says.
Markets are currently pricing in around 7 basis points of rate cuts over a one-year horizon.
Recent comments from ECB Executive Board member Isabel Schnabel, who said she was “comfortable with market expectations for rate hikes,” have further reinforced speculation about potential policy tightening.
Even so, Rabobank warns that current positioning could limit the euro’s upside potential in 2026, even if the ECB adopts a more hawkish tone.
Domestic fundamentals may also constrain euro strength.
“Euro bulls could be disappointed by the slow pace of structural reforms in Germany and persistently weak economic growth,” the analysts argue.
Rabobank highlights downward revisions to Germany’s GDP forecasts by the IFO institute — to 0.8% in 2026 and 1.1% in 2027 — noting that earlier optimism linked to fiscal stimulus has gradually faded.
“While ECB rate-hike expectations imply an upside bias, this is likely to be tempered by Germany’s sluggish growth outlook,” the bank concludes.