BofA cuts euro forecasts, sees stronger dollar in second half on hawkish Fed

Bank of America has lowered its euro-dollar exchange rate forecasts for the second half of 2026, citing a more hawkish Federal Reserve and resilient U.S. economic data that continue to underpin the greenback. The bank now expects EUR/USD to end the third quarter at 1.12 and finish 2026 at 1.15, down from its previous projections. The revision reflects a view that the dollar will remain relatively strong in the near term, with only a moderate weakening expected over the medium term.

The revised forecasts come as the Federal Reserve maintains a hawkish stance, with interest rates staying elevated amid persistent inflation and a robust labor market. This policy divergence between the Fed and other major central banks, particularly the European Central Bank, has widened rate differentials in favor of the dollar. For currency traders, this dynamic supports dollar-buying strategies against the euro and other major currencies. The stronger dollar also pressures emerging market currencies and commodity-linked currencies, as a higher U.S. rate environment attracts capital flows into dollar-denominated assets. For real-time pricing on major pairs, traders can check NowPrice's fx page for current quotes and spreads.

Looking ahead, markets will focus on upcoming U.S. inflation data and Federal Reserve commentary for further clues on the pace of rate adjustments. The ECB's policy path will also be crucial, as any signs of a more hawkish tilt could stem euro weakness. Key levels to watch include EUR/USD support at 1.10 and resistance near 1.15, with the pair likely to remain sensitive to shifts in interest rate expectations. BofA's revised forecasts suggest that the dollar's strength may persist through the third quarter before a gradual decline later in 2026.