EUR/USD forecast: Currency Pair of the Week – December 8, 2025

From its lowest point last month to its highest last week, the EUR/USD has risen about 200 pips in the space of a few weeks. Lower energy prices, hopes for peace in the Ukraine-Russia war, modest improvement in Eurozone data, and the arrival of German fiscal stimulus in 2026 have all helped to provide some support for the euro. Meanwhile, the seasonal bout of December dollar softness has also helped the EUR/USD stay above the key 1.15 handle. Attention now shifts to central bank meetings kicking off this week. US data threw up a few mixed signals, with some pockets of strength but nothing that should stop the Fed delivering a rate cut come Wednesday. Even so, the cut itself is unlikely to move the dollar materially from here; the move is almost entirely priced in. What the market really wants is a softer tone for 2026, and that’s where the disappointment risk sits. However, the EUR/USD forecast is further complicated by the uncertainty about the Fed’s next Chair, with frontrunner Kevin Hassett, seen as a dove, likely to keep pressure on US rates and the dollar.

 

US dollar faces FOMC test

 

We have a busy week ahead of us with several central bank meetings taking place this week. A key theme emerging in recent days is the sense that several major central banks may have already reached, or be very close to reaching, the trough in their policy cycles. Markets now fully price a 25bps hike next year in Australia, New Zealand and Canada, and even the Eurozone could join that list given recent hawkish rhetoric (e.g., today from Isabel Schnabel) and improving data. If that shift in expectations gains traction, the dollar may remain soft heading into 2026.

 

The focus is now turning to what the Fed has to say about future policy. Will they maintain a dovish rhetoric? If so, then should keep downward pressure on the dollar for a while yet. Ahead of it, the US data calendar brings JOLTS job openings tomorrow, which is unlikely to be a gamechanger. So, the focus will pretty much be on the Fed. But validating the 90 basis points of easing priced by early 2027 seems unlikely, which may disappoint the dollar bears, at least temporarily. That’s because, the prospect of Kevin Hassett’s potential nomination as Fed Chair and the usual seasonal year-end dollar softness could see the dollar remaining under pressure despite short-term bounces here and there.  We’ll also hear from central banks in Australia and Canada this week, which could further pressure the dollar index if these banks turn out to be more hawkish.

 

EUR/USD forecast: ECB’s tone turning hawkish

 

The euro has been buoyed in recent times by lower energy prices as a result of overproduction by the OPEC+, hopes for peace in the Ukraine-Russia war, and more to the point improvement in Eurozone data. Investors are also looking ahead to the delayed arrival of German fiscal stimulus in 2026 which cis hoped to boost economic output significantly. Reflecting market’s pricing of a neutral ECB, we heard from ECB board member Isabel Schnabel, who suggested growth risks in the eurozone may in fact be tilting to the upside. She pointed to three possible sources of upside surprises, including household consumption, private sector investment and increased government spending on infrastructure and defence. But there is still the outside chance for one more rate cut in 2026 should the economy not improve as economists at the ECB expect. Watch out for upgrades in the ECB’s growth forecasts at the 18 December meeting.

 

Technical EUR/USD forecast and key levels to watch

 

 

From a technical standpoint, the EUR/USD forecast points modestly higher after rates appeared to have bottomed out around the 1.1500 area in recent weeks. For now, 1.1650–1.1680 looks like a short-term resistance range. Break this and a push towards 1.1700/30 area would be the next logical target, ahead of 1.1800. Whether the EUR/USD will be able to climb above 1.18 handle will probably depend on the Fed’s tone at Wednesday’s Fed meetings, the main risk event this week.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R