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.)