**Euro to Dollar 2026 Forecast: ECB-Fed Divergence Set to Lift EUR/USD, Says Nomura**
*By James McPhail, original article from ExchangeRates.org.uk (December 13, 2025)*
**Overview**
In the current landscape of persistent global uncertainty, the trajectory of the Euro to US Dollar (EUR/USD) exchange rate is once again at the forefront of forex market discussions. Analysts at Nomura have recently projected notable gains for the Euro against the Dollar heading into 2026, hinging on evolving policy divergence between the European Central Bank (ECB) and the Federal Reserve (Fed). Understanding the outlook and strategic reasoning behind Nomura’s position offers important guidance for forex participants.
This analysis delves deeply into Nomura’s forecast, examining their economic rationale, key risk factors, and how shifting monetary policy is set to impact the EUR/USD exchange rate as 2026 approaches.
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**Nomura’s EUR/USD Target for 2026**
Nomura’s latest research points to a strengthening Euro over the next twelve months. The global investment house sees the following key drivers underpinning its EUR/USD call:
– An increased likelihood of the ECB pausing, then tightening, compared to a more dovish Fed profile.
– Structural shifts in capital flows favoring Europe.
– Long-term FX market positioning and valuations.
Nomura’s official EUR/USD target for late 2026 sits in the 1.17-1.20 range, with the upper end of the forecast band to be approached if ECB hawkishness outpaces that of the Fed. This represents a significant improvement from EUR/USD levels witnessed for much of 2024 and 2025, where the pair oscillated around 1.05-1.12 amid global macro headwinds and persistent US Dollar strength.
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**Underlying Economic Themes Influencing 2026 Outlook**
A nuanced understanding of the drivers influencing EUR/USD is essential. According to Nomura, several fundamental factors are at play:
### 1. ECB-Fed Monetary Policy Divergence
The single most critical factor cited by Nomura is the expected divergence between ECB and Fed policy rates:
– **ECB’s Shift**: Markets had previously anticipated a dovish, slow-moving ECB. However, Nomura argues that medium-term inflation risks remain elevated, especially amid continued wage growth. As such, the ECB’s pivot to a neutral or even slightly hawkish stance in late 2025 and into 2026 could surprise investors who are still positioned for easing.
– **Fed’s Easing Path**: In contrast, the Fed is seen as more likely to continue cutting rates through 2026 in response to softening US growth and declining inflationary pressures. This contrasts with earlier years, when robust US macro data underpinned a relatively hawkish Fed.
This projected divergence is anticipated to generate a narrowing, then reversal, of short-term interest rate differentials—which had previously overwhelmed EUR/USD upside attempts.
### 2. Eurozone Economic Resilience
– **Wage Growth and Inflation**: Persistent service-sector wage growth and sticky inflation across much of the Eurozone support the case for less monetary accommodation from the ECB.
– **Fiscal Dynamics**: Unlike the US, European economies are for the most part expected to avoid major fiscal slippages, bolstering investor confidence in the Eurozone’s medium-term prospects.
– **Growth Convergence**: The growth gap between the US and Eurozone, a major tailwind for USD in 2024-2025, is seen narrowing. Improvements in European industrial activity, and better-than-expected Southern European performance, are adding to Euro support.
### 3. US Economic Headwinds
– **Diminishing Fiscal Momentum**: As fiscal stimulus wanes post-pandemic, the US faces challenges from both debt sustainability concerns and a slowing consumption picture.
– **Disinflation**: The US is further along in the disinflation process than Europe, increasing
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