UBS Sees Euro Recovery Against Dollar Despite Risks Soon

Key Moments

Recent EUR/USD Weakness

The Euro has retreated sharply against the US Dollar this month, with the EUR/USD pair sliding to around 1.1470 after previously trading above 1.16 earlier in June. The move reflects renewed support for the Dollar and lingering concerns about growth prospects in the Eurozone.

UBS View: Short-Term Pressure, Long-Term Recovery

UBS expects the Euro to remain under strain against the Dollar in the short run, but the bank maintains its projection for a recovery towards 1.20 over the next year as structural headwinds for the US currency reappear.

According to the bank, the Euro is still underpinned by the European Central Bank’s hawkish policy stance and its firm focus on price stability, even as economic risks persist across the Euro area.

Dollar Support from Fed Policy and US Data

On the US side, UBS highlights that resilient economic data and a more hawkish Federal Reserve have helped sustain Dollar strength. These factors have counterbalanced the impact of recently lower oil prices, allowing the US currency to remain firm.

UBS judges that EUR/USD is likely to trade near the 1.15-1.16 band in the near term, with risks skewed toward further Euro weakness as long as markets continue to consider the prospect of additional Fed tightening.

Shift Toward Fed Easing Seen Weakening the Dollar

Looking further ahead, UBS expects the foundations of Dollar strength to erode. While the bank has delayed its anticipated timing for the next Fed rate cut, it still expects US interest rates to move lower during 2027.

UBS argues that an eventual shift toward Fed easing should diminish support for the Dollar and create room for EUR/USD to grind higher over time.

UBS EUR/USD Forecast Path

UBS outlines a gradual appreciation path for the Euro against the Dollar, with specific targets over the coming quarters.

Trading Stance and Risk Scenarios

UBS acknowledges that continued US economic strength could temporarily push EUR/USD into a lower 1.10-1.15 range. Nevertheless, the bank maintains a strategy that favors selling into Dollar rallies and remains positive on the Euro’s medium-term trajectory.