Eurozone 2026 GDP growth forecasts fell from 1.2% to 0.8% since the start of the conflict. US 2026 growth forecasts also fell by 0.4 percentage points, from 2.5% to 2.1%.
The ECB is expected to deliver at least one rate rise in response to higher inflation. Global central banks may slow or stop rate rises if growth weakens.
Over the same period, the Dollar Index traded in a 96–101 range. EUR/USD moved between 1.14 and 1.21.
Bloomberg end-2026 consensus forecasts are 96.7 for DXY, 1.20 for EUR/USD, and 1.35 for GBP/USD. Societe Generale’s end-2026 forecasts are 98.6 for DXY, 1.16 for EUR/USD, and 1.32 for GBP/USD.
The article was produced using an AI tool and checked by an editor.
We see the Eurozone’s 2026 growth outlook being cut more sharply than in the US, down to just 0.8%. Recent data supports this, with preliminary Q1 GDP figures from Eurostat showing just 0.1% growth, and the latest German IFO Business Climate index for April 2026 dropping to a 12-month low. This growing gap in economic performance points to a weaker Euro ahead.
While the European Central Bank is talking about at least one more rate hike to fight inflation, we believe this resolve will weaken as the economy slows. With headline inflation now showing signs of cooling from the highs seen in 2025, the pressure to hike is easing. This creates an opportunity for traders, as the market may be overpricing the ECB’s commitment to further tightening.
We are looking at a year-end EUR/USD forecast of 1.16, which sits well below the broader market consensus of 1.20. In the coming weeks, this suggests positioning for a weaker Euro by purchasing put options with strike prices around 1.17 or 1.16, targeting late summer expirations. Selling out-of-the-money call spreads above the 1.20 level could also be a prudent strategy to capitalize on limited upside potential.
We remember the period back in 2025 when the Dollar Index mostly traded sideways in a 96-101 range. The current divergence in growth between the US and Europe could be the catalyst that drives the dollar towards the higher end of that old range. Our forecast for the DXY to reach 98.6 by year-end reflects this view of renewed dollar strength.
