MUFG Sees Euro Rallying to 1.20 vs Dollar by 2027 on ECB Rate Peak

MUFG forecasts the euro will rally to 1.20 against the dollar by the first quarter of 2027, a call that stands above consensus as the European Central Bank nears the end of its tightening cycle.

The Japanese bank's view rests on a narrowing of the US-Europe yield spread. As Federal Reserve rate hike expectations fade more quickly than ECB pricing, the interest rate differential that has favored the dollar is set to compress. The unwinding of the Middle East risk premium from oil prices has also allowed rate spread dynamics to reassert themselves as the dominant EUR/USD driver. The bund curve has flattened alongside the drop in crude, with the 10-year yield already easing to reflect reduced inflation risk.

For currency traders, the MUFG forecast implies a structural shift in the dollar's yield advantage. Live FX prices and charts on NowPrice show how the market is already pricing in a less aggressive Fed path relative to the ECB. A narrowing real-rate differential typically supports the euro, especially if the ECB delivers a final insurance hike that reinforces its hawkish stance. Positioning around that potential move will be a key swing factor for European rates markets into year end.

Looking ahead, the path to 1.20 depends on data confirming that US inflation is cooling faster than Europe's. Key releases include US CPI and eurozone PMIs in the coming months. If the Fed holds steady while the ECB hikes one more time, the euro could accelerate its grind higher through 2026 and into 2027. MUFG's above-consensus target suggests the bank sees more downside for the dollar than most.