EUR/USD Forecast 2026-2027: After the Rally – Where Is the Dollar Exchange Rate Really Heading?

The Euro has performed impressively in 2025. From 1.04 to 1.16 USD – a 13.5% appreciation in less than a year. For many traders, the question now is: Can this EUR/USD rally continue, or are we approaching natural limits? The answer is more complicated than it seems, because while the forecast for the dollar exchange rate is supported by fundamental factors, real risks lurk in Europe’s political corners and the economic dynamics of the USA.

Scenario Analysis: Three Paths for EUR/USD 2026-2027

Before analyzing the details, it helps to outline three development paths:

The Base Scenario: EUR/USD fluctuates between 1.10 and 1.20. The euro finds support from interest rate differentials but is held back by European problems. Most of the time, the pair moves between 1.14 and 1.17.

The Risk Scenario: Germany faces a crisis in 2026. The AfD’s election successes, government paralysis, and stalled stimulus measures lead the ECB to loosen again. At the same time, the US economy surprises positively – the dollar gains strength again. EUR/USD falls to 1.05-1.10.

The Bullish Scenario: Europe stabilizes, stimulus works, and the US falls into stagflation. Foreigners reduce dollar positions. EUR/USD breaks through 1.20 and targets 1.22-1.28.

The Dollar Rate Forecast from banks for the end of 2026 ranges between 1.18 (Wells Fargo) and 1.25 (Morgan Stanley, BNP Paribas, Goldman Sachs). For 2027, most expect further appreciation – except Wells Fargo, which anticipates 1.12.

The Interest Rate Differential: The Strongest Argument for Euro Strength

The core argument for an EUR/USD recovery is simple: Central banks are diverging.

The Fed continues to cut key interest rates to 3.4% by the end of 2026 (currently: 3.75-4.00%). The ECB, on the other hand, has ended its cycle – the deposit rate remains at 2.0%. This divergence attracts capital into the euro, as international investors seek higher yields in the Eurozone.

Historically, narrowing interest rate spreads by 100 basis points lead to a currency adjustment of 5-8%. This would lift EUR/USD from 1.16 to 1.22-1.25. Some analysts go even further: if German stimulus in 2027 drives inflation, the ECB could even raise rates while the Fed continues to cut. That would give the euro another push.

Why the Trump Effect Remains Ambiguous

The second Trump administration shows mixed signals. US GDP growth was 3.8% in Q2 2025 – solid. The AI boom, the tax reform (permanently lowered corporate taxes to 21%), and massive foreign investments (TSMC building for $165 billion in Arizona, Samsung investing $44 billion in Texas) speak for dollar strength.

But: US national debt is growing, and the deficit will reach about 6% of GDP in 2026. Trump’s public attacks on the Fed’s independence undermine international confidence. The result? The US dollar lost over 10% against the euro in 2025 – the dollar depreciation plan has worked so far. Whether this is sustainable long-term remains questionable.

The German Stimulus: Hope with Question Marks

Germany’s 500-billion-euro initiative is often portrayed as a game-changer for EUR/USD. In reality, the effects could be disappointing:

Energy costs hinder innovation: German industrial electricity prices are 15-20 cents/kWh – double to triple higher than in the US. Even the industrial electricity price of 5 cents/kWh for 2026-2028 changes nothing about the structural unattractiveness. Energy-intensive sectors (chemicals, steel, semiconductors) stay away.

Bureaucracy slows implementation: German infrastructure projects take an average of 17 years – 13 of those for permits. With 250,000 open positions in construction, the pace won’t accelerate. The stimulus effects fizzle out.

Defense spending doesn’t always help: Parts of defense expenditures go into US weapons (F-35, Patriots). That stimulates America, not Germany.

Political uncertainty hits: The state elections in 2026 could make the AfD the strongest force (currently ~25% in polls). If the grand coalition becomes dysfunctional, risk premiums on German government bonds will explode. The stimulus will be expensive, and implementation difficult.

France and the Eurozone: More Fragile Than Thought

France’s political chaos is real. In October 2025, a government collapsed within 24 hours. The deficit is at 6% of GDP, and the debt ratio at 113%. French government bonds yield higher than Spanish – a warning sign.

The Eurozone itself is growing at a snail’s pace: Q3 2025 only 0.2% q/q (1.3% annualized) vs. the US at 3.8%. For 2026, 1.5% is expected. Inflation is under control at 2.0%, and unemployment is at 6.3% – no reason to panic, but also no driver.

The problem: if German stimulus does work, inflation will rise. The ECB would have to hike rates. But that harms highly indebted countries – a vicious cycle. With its TPI instrument, the ECB could theoretically solve this, but political cooperation among affected countries is lacking.

Technical Level: Where Are the Critical Levels?

After the September high of 1.1868, EUR/USD consolidates at 1.16.

Support: 1.1550 and 1.1470 are critical. A fall below 1.15 would kill the bullish narrative, and EUR/USD could test 1.10-1.12.

Resistance: The zone 1.1800-1.1920 is holding back so far. A sustained breakthrough above 1.20 would technically open the way to 1.22-1.25.

Volatility was extreme: the trading range exceeded 1,600 pips – nervous markets.

Trading According to Risk Management Principles

Because the EUR/USD forecast is so uncertain, it pays to work event-driven:

• Germany state elections 2026: Do the election results signal chaos? That’s relevant for EUR/USD.
• Powell’s successor announcement (May 2026): Will it be a dollar hawk? This influences the Fed’s rate outlook.
• German stimulus data: Is the money really flowing into the economy?
• US labor market and inflation: Is the US economy remaining resilient?
• French fiscal crisis: Will it escalate or calm down?

The watchword: flexibility. Set large stops, buy/sell at critical levels, don’t fight the trend.

The Risks Often Underestimated

Germany risk: The political crisis is not just a theoretical scenario. The probability of government paralysis is high. This significantly reduces the stimulus effect.

Geopolitical shocks: An escalation in Ukraine or a new energy crisis would quickly and massively drive capital into the dollar.

US resilience: The AI boom could bring 2-3% productivity gains. Combined with low taxes and cheap energy – that makes the US structurally attractive.

Conclusion: EUR/USD Remains a Game with Open Cards

The Dollar Rate Forecast for 2026-2027 depends on a few big factors: Will Germany stabilize? Will the US economy stay strong? Will something escalate geopolitically?

Interest rate differentials favor the euro – providing a floor of 1.10-1.12. The dollar is overvalued by 23%. Capital flows are turning around. These are bullish factors.

But European fragmentation, structural energy costs, and US dynamics are real counterweights.

The most likely scenario? A volatile trading range between 1.10 and 1.20, with occasional breakouts upward or downward – depending on which risk materializes. Traders should keep positions small, respect stops, and wait for major catalysts. It will be an exciting year.