UBS Projects Euro to Rebound to $1.16 by Year-End 2026

UBS has forecasted that the euro will recover to $1.16 against the US dollar by the end of 2026, following a recent decline that saw the currency drop from $1.17 to around $1.11. The bank attributes this slide primarily to market sentiment rather than economic fundamentals, suggesting that the euro's fall has overshot what the European economy justifies. UBS analysts noted that the euro was trading at approximately $1.12 at the time of their report, and they believe that the recent concerns regarding French public finances and stronger US economic data have contributed to the euro's weakness.

The bank emphasized that the near elimination of expectations for an interest rate hike by the US Federal Reserve in October has diminished one of the dollar's key supports. UBS does not foresee a broader European debt crisis but anticipates a likely budget agreement in France, which could help narrow the gap between French and German government bond yields. Such a development would support the euro's recovery, particularly if it is achieved through Article 49.3 of the French constitution, allowing the government to pass legislation without a parliamentary vote.

UBS also highlighted that energy prices are a significant factor influencing the euro's trajectory, with expectations that Brent crude oil will approach $80 per barrel by summer 2027. The bank's analysis suggests that a stabilization in energy prices, along with a more favorable outlook for French fiscal policy, could further bolster the euro. Looking ahead, UBS projects the euro could reach $1.18 by March 2027 and $1.20 by mid-2027, following the French presidential election.

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Source: KLEA News