EUR/USD in 2026-2027: After explosive growth – Will the Euro maintain its strength?

The Euro experienced a miracle year in 2025: rising from 1.04 USD in January to 1.16 USD in November – an appreciation of 13.5%. But the key question is: Is this just the beginning of a new era of EUR/USD development, or was the dream too quickly dreamed? The answer lies in the tension between stable monetary policy and political uncertainties.

What drives the current movement?

The rally had concrete reasons. The Euro broke its eleven-year downtrend in April 2025 and hit a yearly high of 1.1868 in September. Currently, the pair is consolidating around 1.16 USD, with technical support at 1.1550 and 1.1470. A fall below 1.15 would question the bullish scenario – then possibly targeting 1.10-1.12. On the upside, the zone 1.1800-1.1920 acts as resistance; a sustained break above 1.20 could open the way to 1.22-1.25.

The interest rate divergence as the main driver

The fundamental argument for further euro strength is crystal clear: The Federal Reserve cut interest rates in September and October 2025 by a total of 50 basis points and signals further cuts to 3.4% by the end of 2026 ( currently 3.75-4.00%). The ECB, on the other hand, has kept its key rate stable at 2.00% since June – and is likely to keep it there.

This divergence works on a simple mechanism: When interest rate spreads shrink, capital tends to flow into higher-yielding currencies. Historically, a narrowing of 100 basis points leads to a currency adjustment of 5-8% – which could theoretically push the EUR/USD rate from 1.16 to 1.22-1.25.

Some analysts even expect the ECB to raise rates again in 2027 before the Federal Reserve, if Germany’s large investment package succeeds. That would significantly amplify the effect.

The downside: Structural hurdles in Europe

But here the problems begin. Germany’s planned 500-billion-stimulus package over 12 years is hailed as a game-changer – but may be overestimated.

Problem 1: The energy cost trap German electricity prices are at 30-35 cents/kWh for households and 15-20 cents/kWh for industry – double to triple higher than in the US. Even industrial electricity prices of 5 cents/kWh for 2026-2028 won’t change this long-term. Energy-intensive sectors (chemistry, steel, semiconductors) will continue to avoid Germany in the medium term. The stimulus cannot fix this cost structure – it fights symptoms, not the disease.

Problem 2: Implementation nightmare German infrastructure projects take on average 17 years from planning to completion (including 13 years just for permits). The construction industry reports 250,000 open positions. The multiplier effect of the stimulus could therefore be much smaller than hoped.

Problem 3: Military spending flows into the US Part of Germany’s defense expenditure will flow into US systems (F-35, Patriot, Chinook) – which stimulates the American economy more than creating German value added.

Problem 4: The political time bomb State elections in Germany in 2026 could make the AfD the strongest party in several federal states (current polls: ~25% nationwide). A political crisis in Germany could widen German bond spreads and massively increase the cost of the stimulus – or even block it.

France and the Eurozone: Underestimated volatility

France’s political instability is not a marginal issue – it is central. In October 2025, a government collapsed within 24 hours. The deficit is around 6% of GDP, and the debt ratio is 113%. French government bonds now yield higher than Spanish – a clear warning sign.

The Eurozone grew only 0.2% in Q3 2025 compared to the previous quarter (annual rate: 1.3%). The US? 3.8% in Q2 2025. For 2026, only 1.5% growth is expected for the Eurozone. Inflation is under control (2.0%), and unemployment is at 6.3% – but this could change quickly.

A dilemma is emerging: if the German stimulus fully materializes, it could drive inflation. The ECB would then have to raise interest rates – putting high-debt countries under pressure. A classic lose-lose scenario.

Trump 2.0: Underestimating US strength?

On the other hand, the second Trump administration is flexing muscles. GDP growth reached a strong 3.8% in Q2 2025, driven by massive AI investments. The “One Big Beautiful Bill Act” from July 4 made tax cuts permanent – corporate tax remains at 21%.

The result: TSMC is building three chip factories in Arizona ($165 billion), Samsung invests $44 billion in Texas, Intel expands in Ohio ($20 billion). The combination of low taxation, cheap energy, and technological dominance makes the US structurally attractive.

Tariff policy as a negotiation tactic: The “Liberation Day” on April 2, with announced tariffs of up to 145%, fueled fears – but was quickly defused by a 90-day pause. The US secured investment commitments worth billions from the EU, Japan, and others in return. That was clever: Instead of imposing tariffs, the US government attracted investments.

However: The US deficit will reach about 6% of GDP in 2026. Trump’s attacks on Fed independence undermine international investor confidence. The US dollar lost over 10% against the euro in 2025 – exactly as planned to boost the US economy.

What do banks and analysts say?

Consensus on EUR/USD forecasts for 2026 is almost unanimous about further euro strength:

For 2027, it gets more interesting – first cracks in the consensus:

Wells Fargo expects a depreciation, citing the end of Fed rate cuts, a US rebound, and lack of Eurozone attractiveness.

Three scenarios until 2027

Base case – Range 1.10-1.20: Counteracting factors neutralize each other. The interest rate divergence supports the euro (lower bound 1.10-1.12), European risks limit the upside potential (upper bound 1.18-1.20). Germany develops mixed – the stimulus is partly implemented but also partly fizzling out. The US avoids recession but grows only 1.8-2.2%. The rate fluctuates between 1.14 and 1.17.

Bear case – EUR falls to 1.05-1.10: The AfD election successes in 2026 destabilize Germany, the grand coalition becomes dysfunctional, and the stimulus stalls. German bond spreads widen, France’s crisis escalates. The ECB must cut rates, while the US surprises positively (AI boom, inflation at 2%, Fed pauses at 3.50%). EUR/USD drops to 1.08-1.10, possibly testing 1.05.

Bull case – EUR rallies to 1.22-1.28: Germany stabilizes, the stimulus is quickly implemented, France relaxes. Eurozone growth reaches 2%. The ECB signals rate hikes for 2027 in 2026. Meanwhile, the US crisis deepens: inflation remains stubborn, labor market weak, stagflation threatens. Foreign investors reduce US holdings. EUR/USD breaks above 1.20 and moves into the zone 1.22-1.28.

Trading in uncertain times

Those wishing to position should act event-driven. Critical dates for 2026:

• State elections in Germany
• Appointment of Powell’s successor (May 2026)
• Budget developments in France
• Stimulus data from Germany
• US economic surprises

Risk management is essential, as the situation remains highly dynamic in both the Eurozone and the US.

The biggest pitfalls

1. Underestimating Germany risk: The political crisis is not a theoretical scenario – the probability of grand coalition problems is very high.

2. Geopolitical shocks: An escalation in Ukraine or a second energy crisis would likely massively boost the dollar, even though Europe’s energy diversification has advanced.

3. Underestimating US resilience: The AI boom could bring productivity gains of 2-3% annually and give the US a structural advantage.

Conclusion: The direction change is still open

The EUR/USD forecast for 2026-2027 is a classic tug-of-war. The monetary policy divergence favors the euro and sets a lower bound at 1.10-1.12. The dollar is overvalued by about 23%, and capital flows could reverse.

At the same time, political fragmentation in Germany, structurally high energy costs in Europe, and the resilient US economy (AI boom, tax reform) raise fundamental questions.

The answers will be decisive: Will Germany succeed in political stabilization after the 2026 elections? Will the stimulus work despite structural hurdles? Will the US economy remain resilient?

Whether we see a new Euro strength in 2026-2027 or the dollar regains its dominance depends on these factors. Volatility is guaranteed – clarity is scarce.