According to Nordea’s analysts, the additional “risk premium” that previously worked in the dollar’s favor has largely faded. This is helping prevent a sharp upswing in the U.S. currency in the short term. However, the bank expects renewed market concerns next year, which could put the dollar under renewed pressure.
Nordea now forecasts EUR/USD to climb toward 1.24 by the end of 2026.
The bank also notes that markets still expect the Federal Reserve to cut rates — potentially to around 3.25% in the coming months. Although Jerome Powell recently signaled that a December cut is not guaranteed, Nordea acknowledges that rising uncertainty could temporarily support the dollar.
Still, on a longer horizon, Nordea believes that skepticism toward the dollar is justified.
A major source of uncertainty is the question of Federal Reserve independence. President Donald Trump’s attempt to remove Fed Governor Lisa Cook is still pending before the US Supreme Court. Nordea cautions that a ruling against Cook would reignite concerns about political pressure on the central bank and further undermine confidence in the dollar.
Another risk factor is the upcoming leadership change: Jerome Powell’s term ends in May 2026. A new Fed Chair aligned with Trump’s preference for much lower interest rates could introduce additional volatility for the dollar.