EUR/USD weakness unlikely to stay as dollar bears | Money News

Investing.com — The euro could also be limping towards a second straight week within the crimson towards the dollar, however BofA says don’t depend on the hunch lasting long. With the Federal Reserve turning dovish and Germany poised to drive a stronger eurozone restoration, the buck’s grip appears to be like shaky and the one currency might quickly regain its footing.

What seems as dollar energy masks growing coverage dangers at home. BofA’s FX strategists level to Washington’s mounting “political pressure to cut” and “reduced Fed independence over time,” which threatens the dollar with a “renewed downtrend” as the Fed pivots dovish on labor and charges.

“Our bearish USD thesis remains intact. Regardless of what the Fed does at the September meeting… we see scope for gradual depreciation into next year,” BofA mentioned in a current report, forecasting EUR/USD to hit $1.20 by yr finish and $1.25 by the tip of 2026.

While the U.S. is contending with sticky inflation and uncertainty round tariffs as properly as the labor market, euro-area prospects are brightening not least as a result of of Germany’s plan to enhance spending.

“A ‘lower bar for positive EUR surprises after the US-EU trade deal’ and a German fiscal push, expected to close the gap with U.S. growth, will likely give the single currency extra oomph.

“Our economists consider the German fiscal shift to be a game-changer… a key reason…Euro area growth [is seen] to accelerate from next year, converging to that of the US,” BofA said.

The currency market is not yet crowded with dollar bears, with BofA noting that “USD shorts are not crowded, and EURUSD still below fair value.” Even with the euro’s current wobble, quant and trend alerts level to a bullish continuation for EUR/USD heading into 2026, supporting the view that “trend continuation is bullish for EURUSD” with price targets of 1.20 this yr and 1.25 by end-2026.

The bearish dollar call, nevertheless, has caveats. Delayed German or European fiscal spending and near-term French political noise might weigh on the euro, whereas any resurgence of U.S. “exceptionalism” or Fed pushback on dovish coverage might gradual the dollar’s decline, BofA cautioned. But “USD remains overvalued vs. all G10 currencies except CHF, including EUR, according to our analysis,” it added.

For merchants, the story is much less about chasing short-term swings and more about making ready for a regime shift. Fed coverage dangers and euro-area growth drivers, BofA says, level to a fading dollar energy narrative and a brewing bullish case for the euro.