Euro faces two-phase weakness with scope for recovery against US Dollar – Commerzbank

EUR/USD’s sharp fall since September initially reflected broad US dollar strength, before concerns about France’s public finances put the euro itself under pressure, according to Commerzbank’s Thu Lan Nguyen. In her view, the euro’s downside should remain contained provided German Bunds keep their safe-haven status. She expects EUR/USD to recover next year, with forecasts moving from 1.15 in December 2026 to 1.18 by December 2027.

Euro faces pressure while downside remains limited

"EUR/USD has declined markedly since September. Initially, the move was driven by broad-based US dollar strength amid a more supportive interest rate outlook. Since early October, however, euro weakness has taken center stage, reflecting growing concerns over the sustainability of France’s public finances."

"That said, as long as German government bonds retain their safe-haven appeal, the euro’s downside should remain limited. With energy markets expected to ease and interest rate expectations to readjust, we see scope for EUR/USD to recover next year."

"EUR/USD fell to its lowest level since spring 2025 in mid-October. The downward move, which began in September, can be divided into two phases."

"We expect the US dollar to suffer more from such a correction than the euro, not least because lower energy prices should improve the economic outlook for the euro area by more than for the US. We therefore see further upside potential for EUR/USD next year."

"If, however, conditions in bond markets stabilize, we see scope for the single currency to recover in the short term. This is supported by the fact that, if necessary, the ECB has effective crisis-management tools at its disposal, such as the Transmission Protection Instrument (TPI)."

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