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Bank of America expects the euro to strengthen against the U.S. dollar over the coming year, forecasting EUR/USD will reach 1.15 by the end of this year before climbing to 1.20 by the end of 2027, according to a research note from the bank.
The forecast comes as currency markets weigh relatively resilient U.S. economic data against a growing list of geopolitical, fiscal and technological risks that could influence the dollar outlook.
U.S. macroeconomic conditions remain reasonably solid, with unemployment hovering around 4% and economic growth running at approximately 2%. However, Bank of America highlighted several risks that could increase volatility across global financial markets.
These include the ongoing Iran war and its impact on energy supplies, renewed trade tensions, persistent concerns over U.S. fiscal challenges and uncertainty surrounding the upcoming U.S. midterm elections. The bank also pointed to growing concerns about potential risks associated with artificial intelligence.
Developments in the eurozone have provided some support for the euro. Economic activity data have recently exceeded expectations, while the European Central Bank has continued to emphasize its commitment to controlling inflation.
Still, Bank of America identified several potential obstacles to further euro appreciation. Elevated energy prices remain a significant risk for the eurozone economy, particularly given Europe's dependence on imported energy. Political and economic developments in France could also weigh on sentiment toward the single currency.
The EUR/USD outlook is increasingly shaped by the contrast between resilient economic conditions and mounting geopolitical uncertainty. The Iran conflict has heightened concerns about a global supply shock, while renewed international trade tensions could create additional pressure on growth and inflation.
Against this backdrop, Bank of America maintained its EUR/USD forecast of 1.15 for year-end. The bank expects the currency pair to extend its gains over the longer term, reaching 1.20 by the end of 2027 as investors navigate changing U.S. and eurozone economic conditions.
