The Euro (EUR) has benefited from Germany’s fiscal loosening and diversification flows, but stronger US growth projections and resilient consumer spending suggest EUR/USD may remain range-bound in 2026 rather than extending a major rally, Rabobank's FX analyst Jane Foley reports.

Fed upgrades US growth, limiting further USD weakness

"While German fiscal spending is expected to finally shake Europe’s largest economy out of stagnation next year, the EUR has been preparing for this for months. Following the loosening of Germany’s debt brake at the start of this year, the EUR took the position of second best performing G10 currency in Q2 after the safe-haven CHF."

"Diversification trades suggest that the EUR will continue to find support this year. That said, last week the Fed upgraded its US growth projections for both 2025 and 2026 citing resilience in consumer spending and a pick-up in business investment. This should support investment inflows into the US."

"Given the massive shake out in long USD positions in the first half of the year and the smaller degree of disruption to the US economy than had been feared from Trump’s tariffs policies, we are reluctant to call for further progressive USD downside in 2026. Instead, we favour periods of choppy range trading for EUR/USD."