EUR/USD is the world's most traded currency pair, and everyone has an opinion about where it's headed. The magic number that keeps coming up in 2026 is 1.20 — a level not seen since 2021. Is it realistic? Let's dig into what's driving EUR/USD and what the smart money is actually expecting.
Current Status: EUR/USD is trading around 1.08-1.10 as of early 2026. The consensus forecast for year-end is 1.12-1.18, with some bulls targeting 1.20. That implies potential Euro strength of 2-10% depending on which forecast you believe.
The Case for a Stronger Euro
Interest Rate Convergence
For years, the Euro was held back by a massive interest rate gap. The Fed raised rates aggressively while the ECB was slower to respond. Holding dollars earned significantly more interest than holding Euros.
That gap is now narrowing. The ECB has ended its rate-cutting cycle and is approaching its own neutral rate. Meanwhile, the Fed is no longer tightening. This rate convergence is arguably the most important driver of EUR/USD in 2026.
When rates converge, money that parked in dollars for yield may flow elsewhere. Some will move to Euros, especially if European assets look undervalued.
European Economic Recovery
Europe's economy has been through the wringer — energy crisis from the Russia-Ukraine situation, manufacturing slowdowns in Germany, inflation challenges. But there are signs of stabilization:
- German industrial orders are recovering
- Energy prices have normalized from 2022 peaks
- Southern European economies (Spain, Portugal) are showing resilience
- Labor markets remain relatively strong
A Europe that's recovering, not collapsing, is a Europe that attracts investment flows. That's positive for the Euro.
Undervalued Currency?
By some measures, the Euro is undervalued. Purchasing Power Parity models suggest EUR/USD "should" be around 1.25-1.30. Now, PPP is a long-term concept that markets routinely ignore for years. But it suggests that if confidence in Europe improves, there's room for the Euro to rise.
The Case Against EUR/USD Reaching 1.20
European Structural Issues
Europe still has problems that won't disappear in 2026:
- Germany's industrial base faces long-term competitive challenges
- Political fragmentation across EU member states
- Demographic headwinds worse than the US
- Slower productivity growth than the US
These factors limit how much the Euro can sustainably rise against the dollar.
Dollar Safe Haven Demand
Whenever global risks spike — geopolitical tensions, financial market stress — money flows to dollars. Europe is geographically closer to the Russia-Ukraine conflict and more exposed to Middle Eastern energy disruptions. In a crisis, EUR/USD typically falls, not rises.
US Economic Exceptionalism
The US economy has consistently outperformed expectations. Tech leadership, AI investment, flexible labor markets, and abundant energy have all contributed. If this continues, the dollar may hold its value better than bears expect.
What the Forecasters Say
| Source | Q2 2026 | Q4 2026 | Reasoning |
|---|---|---|---|
| Goldman Sachs | 1.10 | 1.14 | Gradual EUR strength on rate convergence |
| Morgan Stanley | 1.12 | 1.16 | Dollar cycle turning, EUR undervalued |
| Citi | 1.14 | 1.18 | Bullish on European recovery |
| JPMorgan | 1.09 | 1.12 | More cautious, US resilience |
| ING | 1.11 | 1.15 | Medium-term EUR positive |
| UBS | 1.13 | 1.18 | USD weakness primary driver |
Notice that even the most bullish mainstream forecasts (Citi at 1.18) fall short of 1.20. The 1.20 target exists but represents an optimistic scenario, not the base case.
Scenarios for EUR/USD in 2026
Bullish Scenario: EUR/USD reaches 1.18-1.22
This happens if: European economy accelerates, ECB stays firm while Fed cuts more, US fiscal concerns mount, geopolitical environment stays calm. Probability: ~25%
Base Case: EUR/USD trades 1.10-1.16
This happens if: Rate convergence proceeds gradually, both economies grow moderately, no major shocks either direction. Probability: ~50%
Bearish Scenario: EUR/USD stays below 1.10 or falls
This happens if: US economy outperforms significantly, geopolitical risk spikes trigger safe-haven dollar buying, European political instability emerges. Probability: ~25%
Best Time to Buy Euros?
If you need Euros for travel, property purchase, or business, here's a practical approach:
For Small Amounts (Under €5,000)
Don't overthink it. The difference between buying at 1.08 and 1.10 on €3,000 is about $55. Use a good exchange service (Wise, Revolut) and convert when you need to. Time spent watching rates isn't worth it.
For Medium Amounts (€5,000-€50,000)
Consider converting in tranches. If you need €30,000 over six months, buy €10,000 now, €10,000 in two months, €10,000 in four months. This averages your rate and removes the stress of timing.
For Large Amounts (€50,000+)
Talk to a currency specialist. Services like OFX or Moneycorp can offer better rates for large transfers and tools like forward contracts to lock in rates. A forward contract lets you fix today's rate for a future transfer — useful if you're buying property and need to budget.
Rate Alerts Worth Setting
Most currency apps let you set alerts when rates hit certain levels. Useful levels to watch:
- 1.12: Above this suggests EUR strength is gaining momentum
- 1.15: Key psychological level, would confirm bullish trend
- 1.05: Support level — falling below might signal further EUR weakness
- 1.00 (parity): Major psychological barrier, last hit in late 2022
Frequently Asked Questions
Will EUR/USD reach 1.20 in 2026?
Some bullish analysts target 1.20, but it's at the upper end of forecasts. The consensus range is 1.12-1.18 for year-end 2026. Reaching 1.20 would require sustained Euro strength from ECB policy, European economic outperformance, or significant dollar weakness — all possible but not guaranteed.
What factors will drive EUR/USD in 2026?
The key drivers are: Fed vs ECB interest rate differentials (narrowing), European economic recovery (positive for EUR), US fiscal situation, geopolitical risks (often boost USD as safe haven), and relative inflation trends. Energy prices affecting Europe and AI investment flows to the US are also factors.
Is now a good time to buy Euros?
EUR/USD near 1.08-1.10 is historically moderate — not cheap but not expensive. If forecasts of 1.12-1.18 prove correct, buying now could save 2-8%. However, currency timing is notoriously difficult. For known expenses, consider converting in stages rather than waiting for a "perfect" rate.
How does European politics affect EUR/USD?
Political uncertainty typically weakens the Euro. Elections in major economies, EU cohesion concerns, or policy disagreements can trigger Euro selling. Conversely, political stability and reform progress support the currency. Watch for German and French political developments in 2026.
The Bottom Line
EUR/USD at 1.20 is possible but not the base case for 2026. The more realistic expectation is gradual Euro strength toward 1.12-1.16, driven by narrowing rate differentials and European economic stabilization.
If you have Euros to buy, current levels around 1.08-1.10 aren't terrible. If the consensus is right, they're decent entry points. If the consensus is wrong and the dollar stays strong, waiting might not help anyway.
As always with currencies: hedge your bets, don't bet the farm, and make decisions based on your actual needs rather than chasing predictions.