Insights 
VT 
The US Dollar (USD) is currently the top-performing G10 currency on a one-month basis, according to Rabobank’s FX analyst Jane Foley. While it ranks third in performance over the past six months, it remains the weakest in the G10 year-to-date due to early-year declines.
There is ongoing discussion about the USD’s role as a safe haven. A Bloomberg survey predicts further USD weakness, expecting EUR/USD to reach 1.21 by Q3 2026. Rabobank anticipates a short-term target of EUR/USD1.16 based on recent market conditions.
Forecast And Impacts
The forecast includes an expected move to EUR/USD1.20 in Q2, coinciding with the end of Jerome Powell’s term as Fed chair. Concerns over Fed independence could impact the dollar, though much Fed easing is already factored into its value. Rabobank will reassess this forecast once updated US economic data are available.
The US dollar is the best-performing major currency over the last month, driven by a squeeze on short positions. This strength is supported by recent data showing September 2025 inflation holding firm at 3.5%, which challenges the market’s expectation for aggressive rate cuts. We expect this momentum could continue through the end of the year.
For the next one to three months, we see a path for the EUR/USD to move towards 1.16. Derivative traders might consider positions that profit from a stronger dollar into early 2026, such as buying puts on the Euro. This strategy aligns with the current trend and the view that the market has gotten ahead of itself in pricing in US economic weakness.
However, we must remember the dollar’s significant drop earlier in 2025, which shows its underlying weakness. A major turning point is anticipated around the second quarter of 2026, potentially pushing EUR/USD towards 1.20. This timing is linked to the end of the current Fed chair’s term, which could bring concerns about central bank independence to the forefront.
Trading Opportunities And Risks
This presents an opportunity for traders to structure positions for short-term dollar strength while also betting on its decline in the medium term. With currency volatility, as measured by the Cboe FX Volatility Index, having fallen to a six-month low of 6.8, option strategies that capture this timeline may be attractively priced. A trader could, for example, sell near-term EUR/USD calls while buying calls with an expiration date in mid-2026.
A lot of future Federal Reserve easing is already reflected in current prices. We are waiting for delayed US economic data to get a clearer picture, especially after the last jobs report showed a slight cooling in the labor market. A surprisingly strong GDP report for the third quarter could trigger a rapid repricing and punish those positioned for imminent dollar weakness.
