The US Dollar (USD) is currently the strongest G10 currency over the past month, as noted by Rabobank’s FX analyst Jane Foley. It ranks third for the last six months but is the weakest G10 currency year-to-date due to earlier declines. There are ongoing debates about the USD’s safe-haven status. A Bloomberg survey forecasts further weakness for the USD, predicting that EUR/USD will reach 1.21 by Q3 2026. Rabobank sets a short-term target of EUR/USD 1.16 based on recent market trends.

Forecast And Impacts

The forecast anticipates that EUR/USD will hit 1.20 in Q2, which coincides with the end of Jerome Powell’s term as Fed chair. Concerns about Fed independence might affect the dollar, although much of the expected Fed easing is already priced in. Rabobank will revise this forecast as new US economic data is released. The US dollar has performed well over the last month, mainly due to a squeeze on short positions. Recent data shows that September 2025 inflation remains steady at 3.5%. This challenges expectations for significant rate cuts. We expect this positive momentum to continue through the year. In the next one to three months, we anticipate EUR/USD moving toward 1.16. Derivative traders might want to consider positions that benefit from a stronger dollar into early 2026, like buying puts on the Euro. This strategy fits the current trend and reflects the view that the market has overestimated US economic weaknesses. However, we should keep in mind the dollar’s significant decline earlier in 2025, highlighting its underlying weakness. A crucial turning point is expected around Q2 2026, which could push EUR/USD up to 1.20. This change is associated with the end of the current Fed chair’s term, raising concerns about central bank independence.

Trading Opportunities And Risks

This situation offers traders a chance to create positions for short-term dollar strength while also betting on a decline in the medium term. Currency volatility, as shown by the Cboe FX Volatility Index, has dropped to a six-month low of 6.8. Options strategies that align with this timeline may be attractively priced. For instance, a trader could sell near-term EUR/USD calls while buying calls that expire in mid-2026. Much of the anticipated Federal Reserve easing is already reflected in current prices. We await delayed US economic data for a clearer picture, especially since the last jobs report indicated a slight softening in the labor market. A surprisingly strong GDP report for Q3 could lead to a quick market adjustment, impacting those betting on immediate dollar weakness. Create your live VT Markets account and start trading now.

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