What is the fate of 2026 euros? Institutions predict a "three-way confrontation"

Entering 2026, the euro’s trend has become one of Wall Street’s biggest points of divergence. JPMorgan Chase and Bank of America are bullish, while Citi and Standard Chartered are bearish, with Morgan Stanley even offering a “pendulum” forecast. What secrets are hidden behind this prediction battle?

Policy Divergence Is the Core Logic

The “disparate pace” between the Federal Reserve and the European Central Bank (ECB) is becoming the main driver shaking the EUR/USD pair.

On the ECB side, the story of rate cuts has already been told. Supported by Europe’s economic resilience and steady inflation decline, Citi expects the ECB to maintain a 2% rate until the end of 2027. In other words, the ECB has entered a “wait-and-see” period.

The Federal Reserve, on the other hand, is experiencing a new round of “easing window.” Institutions like Goldman Sachs, Morgan Stanley, and Bank of America generally expect the Fed to continue cutting rates in 2026, with most predicting a 50 basis point decrease (two rate cuts), while some, like JPMorgan Chase and Deutsche Bank, are more conservative, expecting only one 25 basis point cut.

What does this policy divergence imply? A narrowing of the US-EU interest rate differential, leading to a relative decrease in the dollar’s attractiveness, creating “fertile ground” for euro appreciation.

Economic Performance Determines the Ceiling and Floor

The economic outlook for Europe and the US in 2026 is not as one-sided as policy suggests.

Europe presents a typical “ice and fire” scenario — large-scale fiscal stimulus from Germany could become a growth engine, but political uncertainty in France still looms overhead. The US faces a delicate situation: on the surface, Bank of America and Goldman Sachs forecast steady economic growth, but Moody’s has cast doubt — the US labor market is stagnating, and once the AI boom subsides, growth momentum could face a risk of disruption.

This economic uncertainty directly influences market judgments on the euro’s prospects.

Three Perspectives, Three Futures

Bullish: The 1.20-1.25 Middle Ground

JPMorgan Chase believes that, supported by Europe’s economic growth and Germany’s fiscal expansion, EUR/USD could gently rise to 1.20 in Q2 2026. If US economic data weaken further, the rise could extend to 1.25. Deutsche Bank’s logic is more aggressive — with Germany’s economy bottoming out and potential peace in Russia-Ukraine conflict, EUR/USD could break through 1.20 in mid-2026 and surge to 1.25 by year-end.

Bearish: Panic at the Bottom 1.12-1.13

Standard Chartered highlights a key risk: if Germany’s fiscal stimulus underperforms expectations, the ECB might be forced to cut rates to counter external growth pressures. In this scenario, EUR/USD could fall to 1.13 by mid-2026 and further decline to 1.12 by year-end. Barclays’ concern is trade-related — worsening trade conditions in the Eurozone, combined with already high market expectations for growth and inflation, which face significant downside risks. They forecast EUR/USD will hit 1.13 by year-end.

Swing: “V-Shaped Reversal” with Rise then Fall

Morgan Stanley sketches out the most complex scenario. Initially, as the Fed cuts rates, narrowing US-EU interest differentials will be the “spring” for the euro, with EUR/USD potentially rising to 1.23 in the first half of 2026, and in optimistic cases even reaching 1.30. But the script reverses in the second half — European fundamentals weaken again, US economic resilience exceeds expectations, and EUR/USD retreats to 1.16 by year-end.

The Essence of Market Divisions

This “tripartite” phenomenon reflects deep investor disagreement over the global economic landscape in 2026. Key variables include: whether Germany’s fiscal stimulus can truly reverse the downturn, whether US economic resilience can continue post-AI boom, and unexpected geopolitical shocks.

For euro traders, 2026 might be a “choose your story” year — do you favor Europe’s recovery narrative, or worry that US resilience will surpass expectations? The future of the euro ultimately depends on which story is more convincing.