Rabobank's RaboResearch Global Economics & Markets team reports that sentiment towards the euro has cooled following earlier optimism related to Germany’s debt brake, with ongoing political risks and structural headwinds now weighing on the currency [1]. The bank notes that while higher short-term interest rates are generally supportive for the euro, the market is already fully priced for another European Central Bank (ECB) rate hike this year, making it unlikely that an additional policy move will provide significant support for the EUR/USD pair [1].
Rabobank highlights that the euro was the second best performing G10 currency in the second quarter of 2025, trailing only the Swiss franc, which underscores the euro's strong performance during that period [1]. However, the euro has since lost momentum, which has important implications for the EUR/USD outlook. The bank expects the market to be hesitant to rebuild large, long positions in the euro in the coming months, especially as the US dollar has benefited from a resilient US economy [1].
Despite this, Rabobank believes that hawkish bets on the US Federal Reserve are overdone and forecasts that EUR/USD will trade sideways near current levels over the next one to three months, with a modest upward bias potentially emerging over a three to six month horizon [1].
CONCLUSION
Rabobank anticipates that the euro will trade sideways against the US dollar in the near term, with only a modest upward bias expected further out. The market appears cautious due to cooled euro sentiment, political risks, and structural challenges, while the impact of additional ECB rate hikes is seen as limited.