A unanimous Federal Reserve rate rise has steadied confidence in the central bank and underpinned the dollar in the near term, leading Commerzbank to trim its EUR/USD year-end forecast to 1.15 from 1.17. The bank still expects both the Fed and the European Central Bank to deliver one more hike this year, but sees markets pricing too much tightening beyond that.
For 2024 and beyond, Commerzbank anticipates US rate expectations will be revised down as the current inflation shock fades over next year, and it sees a chance of Fed rate cuts by end-2027. It also expects only one further rate increase in December, followed by unchanged rates through end-2027; on that basis, EUR/USD is projected to rise towards 1.18 by end-2027 as the dollar faces greater pressure than the euro. If Iran–US relations improve and energy prices fall sharply, the pair could dip further, though any resulting dollar strength is framed as temporary.
Strategies For Near-Term U.S. Dollar Strength
We recommend that derivative traders position for near-term US Dollar strength over the coming weeks, targeting a drop in the EUR/USD pair toward 1.15 by the end of 2026. The Federal Reserve’s recent unanimous decision to raise interest rates has restored market confidence in its inflation-fighting resolve, keeping the greenback highly resilient. This hawkish momentum is backed by recent US economic data, with GDP growing at a solid 3.0% annualized pace and core PCE inflation remaining sticky at 2.6%.
To capitalize on this immediate trend, we suggest focusing on short-term EUR/USD put options or selling rallies in the spot market. However, we expect this Dollar strength to be temporary, as both the Fed and the European Central Bank are likely nearing the absolute peak of their tightening cycles. Once the final interest rate increases of this cycle are delivered by December, market focus will rapidly shift toward potential rate cuts.
Positioning For Longer-Term Euro Recovery
For the longer horizon, we advise traders to begin accumulating EUR/USD call options with maturities stretching into late 2027, targeting a rebound toward 1.18. Historical data shows that the Dollar Index typically depreciates by an average of 6% to 8% during the twelve months following the end of a Fed hiking cycle. As inflation pressures ease and the Fed eventually begins cutting rates, the Dollar’s yield advantage will erode, leaving the greenback vulnerable to a deeper sell-off.
