Why the Dollar’s Dip Could Rocket EUR/USD All the Way to 1.22 — Here’s What Traders Aren’t Telling You
Ever wonder if the US Dollar might be about to take a little breather—maybe even a step back—while its old rival, the Euro, tears ahead? Well, ING’s FX team seems pretty convinced that 2026 will be a year where the Dollar plays a more reserved role. Picture this: softer US growth on the horizon, the Fed easing rates twice, and a Eurozone that’s flexing its economic muscles just enough to steal a bit of the spotlight. It’s like watching a financial chess game, where the risks pile up on Uncle Sam’s side just as Europe gets ready to make its move. And yes, while the Dollar’s decline this year might not be as dramatic as last year’s, it’s enough to make investors sit up and reconsider where the real opportunity lies. So, is it time to rethink the Dollar’s dominance, or is this just a mild detour? Let’s dive into what could be nudging those EUR/USD numbers upward by year-end. LEARN MORE.
ING’s FX team maintains a bearish Dollar baseline for 2026, expecting lower front-end US rates and softer US growth in the second half of the year to support EUR/USD. With Eurozone data seen improving relative to the US and risks concentrated on the US side, the bank projects EUR/USD to grind higher into year-end.
Fed cuts and Eurozone resilience support upside
“Our baseline view for the dollar is a bearish one for the remainder of 2026. USD hedging should keep up at a good pace thanks to lower front-end rates (we expect two Fed cuts this year), and a slowdown in US growth in the second half of the year will, in our view, coincide with upbeat eurozone figures, lifting EUR/USD.”
“We don’t expect this year’s dollar decline to match 2025’s in magnitude, but the concentration of risks in the US – from equity valuations to fiscal and political risks ahead of the midterm elections – means the risks remain on the downside for the greenback. We target 1.22 in EUR/USD by year-end.”
“We agreed with the report’s findings that high dollar hedging costs had kept investor dollar hedge ratios low, although it was notable – looking at EUR/USD hedging levels anyway – that investors were relatively underhedged early last year.”
“Our baseline assumes that the cyclical factor of a 50bp Fed cut versus unchanged ECB rates will see dollar hedging costs narrow further and should be consistent with dollar hedge ratios being raised to around 74% by the end of the year.”
“It’s not that the US outlook is deteriorating. It’s just that, for the first time in a long time, there are some more attractive opportunities overseas. This theme is consistent with a benign dollar decline.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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