Barclays
FX Outlook 2026: Navigating the Turn
LIVE28 November 2025USD bearish
Back to CurrenciesModerately Bullish
EUR/USD
Rate convergence unlocks EUR upside
BARC Forecast Path
vs Prior ForecastCurrent target: 1.21Prior target: 1.22Revision: -0.8%
Cross-Firm Forecast Comparison
Key Drivers
Fed terminal rate
German fiscal delivery
Relative growth momentum
Real yield convergence
Terms of trade
All Firm Targets (Dec '26)
GSBullish1.2500
DBStrongly Bullish1.2500
MUFGBullish1.2400
INGBullish1.2200
BofABullish1.2200
BARCModerately Bullish1.2100
JPMModerately Bullish1.2000
MSBullish (H1), Fading (H2)1.1600
Key Issues for 2026
1.Fed-ECB rate convergence is the primary driver
2.German fiscal expansion creates a floor around 1.15
3.Structural productivity gap limits upside beyond 1.25
4.EUR not an effective funder despite moderate yield
5.Hedging flows neutral as FX hedging urgency fades
Risk Scenarios
Very bullish1.25+
US recession or Fed independence concerns escalate
Base case bullish1.19-1.21
Fed delivers insurance cuts; German fiscal flows through to growth
Range-bound~1.15
Fed pauses; European growth merely meets expectations
Bearish~1.08
ECB forced to cut further while Fed remains on hold
Analysis Summary
EUR/USD to strengthen on rate convergence as ECB holds while Fed cuts insurance. German fiscal expansion provides a floor but structural productivity gap limits upside. Range-bound 1.15-1.25 with moderate bullish bias targeting 1.21. Gains to be more sustainable than 2025 on improved fundamentals.