Bank of America
FX Outlook 2026: Structural Dollar Headwinds
LIVE5 December 2025USD bearish
Back to CurrenciesBullish
EUR/USD
European renaissance drives EUR higher
BofA Forecast Path
vs Prior ForecastCurrent target: 1.22Prior target: 1.2Revision: +1.7%
Cross-Firm Forecast Comparison
Key Drivers
German fiscal expansion
Fed-ECB rate convergence
Twin deficits
Reserve diversification
European growth momentum
All Firm Targets (Dec '26)
GSBullish1.2500
DBStrongly Bullish1.2500
MUFGBullish1.2400
BofABullish1.2200
INGBullish1.2200
BARCModerately Bullish1.2100
JPMModerately Bullish1.2000
MSBullish (H1), Fading (H2)1.1600
Key Issues for 2026
1.German fiscal expansion to add 0.5%pt to EZ GDP growth
2.ECB near terminal but Fed still cutting
3.Twin deficit dynamics structural negative for USD
4.Reserve managers diversifying into EUR
5.European growth momentum accelerating
Risk Scenarios
Very bullish1.25+
German fiscal multiplier exceeds expectations, Fed cuts aggressively
Base case1.20-1.22
Gradual fiscal stimulus, steady Fed easing
Bearish~1.12
European growth disappoints, Fed pauses
Analysis Summary
EUR benefits from the European fiscal renaissance led by Germany's infrastructure spending. Twin deficit dynamics in the US and narrowing rate differentials favor EUR appreciation through 2026. Structural flows from reserve diversification also supportive.