Article rewritten and expanded based on the original by Elaine Housten at ExchangeRates.org.uk: https://www.exchangerates.org.uk/news/44455/2025-11-04-euro-to-dollar-forecasts-lowered-through-2026-societe-generale.html
Title: Societe Generale Lowers Euro to Dollar (EUR/USD) Forecasts Through 2026 Amid Economic Divergence
Author credit: Originally reported by Elaine Housten at ExchangeRates.org.uk
As global financial markets enter a new phase of heightened uncertainty, Societe Generale has revised down its forecast for the Euro to US Dollar (EUR/USD) exchange rate through 2026. The latest projections reflect growing concerns about a diverging economic outlook between the Euro Area and the United States, as well as expectations of more dovish monetary policy from the European Central Bank (ECB) in contrast to the Federal Reserve’s more cautious stance on easing rates.
Summary of Key Changes in EUR/USD Forecasts:
– EUR/USD forecast for end-2024 has been lowered to 1.02 (previously 1.09)
– Forecast for end-2025 revised down to 1.03 (previously 1.12)
– Forecast for end-2026 trimmed to 1.06 (previously 1.15)
Societe Generale analysts highlight that the factors driving the downward revision are structural, cyclical, and policy-related. The underlying weakness in Eurozone growth, the monetary policy divergence between the ECB and Federal Reserve, and geopolitical tensions all contribute to the bank’s cautious outlook on the euro.
Underlying Economic Disparities
Societe Generale analysts, led by forex strategist Kenneth Broux, emphasized that the divergence in growth momentum between the United States and the Euro Area has become more pronounced throughout 2024. Whereas the U.S. economy continues to show resilience, driven by a strong labor market and steady consumer demand, the Euro Area lags behind due to falling consumer confidence, weak manufacturing data, and energy-related constraints.
Key Points:
– The U.S. economy has seen GDP growth beating forecasts in consecutive quarters in 2024, supporting dollar strength.
– Consumer spending in the U.S. remains robust, while European consumers remain cautious due to inflation and energy prices.
– Employment levels in the Euro Area remain below pre-pandemic levels in several major economies.
– Industrial production in Germany, particularly in the automotive and energy sectors, has faced continued headwinds.
– Societe Generale notes that economic growth in France and Italy is also expected to underperform compared to the U.S. in the medium term.
Monetary Policy Divergence: Fed vs. ECB
One of the central assumptions behind Societe Generale’s forecast revision is the expected divergence in monetary policy between the ECB and the Federal Reserve over the next two years. In particular, the timing and speed of interest rate cuts will play a significant role in shaping the direction of the EUR/USD currency pair.
What is driving the divergence?
– The Federal Reserve is anticipated to cut interest rates at a measured pace, given sticky inflation and robust economic activity.
– In contrast, the ECB is expected to move more aggressively to cut rates in 2025 and 2026, in an effort to support weak growth and inflation expectations below target.
– The Fed’s strong signal to maintain rates “higher for longer” through 2025 contrasts with the ECB’s increasing concern about economic stagnation and declining inflation momentum.
Rate Forecast Summary:
– By end-2025, the ECB is projected to lower its benchmark rate by 100 to 150 basis points.
– The Fed, in contrast, is only expected to lower rates by about 50 to 75 basis points across the same period.
– The resulting interest rate differential could place further downward pressure on the euro relative to the dollar.
Inflation Trajectories
A key aspect of the monetary policy divergence is inflation. The United States continues to grapple with
Read more on EUR/USD trading.