EUR/USD Q4 OUTLOOK

Executive Summary

Core thesis: We are bearish on EUR/USD, targeting a decline to 1.1450 in Q4 2025, potenঞally pushing lower to 1.1000 in Q1 2026. This contradicts the consensus view of “mildly bullish”, as we anticipate that the Fed will be unable to cut rates as aggressively as already priced due to sticky inflation. Simultaneously, we expect that the Eurozone’s economic stagnaঞon will force the European Central Bank (ECB) to cut rates earlier and deeper than expected. We believe that the bar for a hawkish US data surprise is low, while the market is complacent about the risk of a dovish ECB data shock. Primary Driver: The monetary policy divergence is not ending, rather entering a new phase. We forecast a “higher for longer” narrative from the Fed, against a dovish surprise from the ECB, causing the US-German 2Y yield spread to widen, fuelling USD strength. Risks: An unexpected downturn in the US economy, forcing the Fed into emergency rate cuts ahead of the ECB, triggering a bullish ECB.