EURUSD Forecast: Why 1.14 Is Unsustainable

We last wrote about our EURUSD forecast in November 2024, when the pair was trading near 1.04. At the time, we argued that EURUSD was undervalued and expected it to rally back to its long-term average of around 1.08. That view proved correct – EURUSD moved from lows of 1.03 to above 1.15 in April 2025 and is now trading around 1.14.

It’s worth repeating that forex forecasting is notoriously challenging, and our preferred approach incorporates some technical elements, but it’s purely statistical, and perhaps even technical to some extent; it works best for us.

EURUSD Forecast: Long-Term Technical Framework

Let’s start with the big picture. The chart we’re using is a 15-year monthly EURUSD chart, sourced from Yahoo Finance. It features a 48-month moving average, currently sitting at 1.0854, with a 7% band on either side — the upper band at 1.1614 and the lower at 1.0095.

Our EURUSD forecast relies heavily on this kind of statistical framework. The idea is simple: EURUSD has a relatively stable long-term valuation centered on the 48-month moving average. Deviations from it are treated as noise, which tends to reverse over time.

That thesis has generally held up, with notable exceptions in 2015 and 2022 — both times when ECB and Fed monetary policies were wildly out of sync:

• In 2015, the ECB launched QE while the Fed did not.

• In 2022, the Fed hiked rates aggressively while the ECB lagged behind.

In contrast, today’s policy stance looks more aligned. Yes, the Fed has been slower to cut rates, but that only strengthens the case that EURUSD should be cheaper, not more expensive. Still, that’s a side point for now.

Current EURUSD Levels and Interest Rate Dynamics

Returning to the present: our EURUSD forecast suggests that the pair is now close to a short-term maximum. European interest rates are around 2%, roughly aligned with Euro Area inflation. Meanwhile, US rates are still at 4.5%, which is more than 2% above current inflation.

Looking ahead, economists project US 5-year inflation to average around 2.5%, while they anticipate short-term interest rates will stay above 3.5% over the next two years. That means the real interest rate differential still favors the USD — by a wide margin.

So why is EURUSD still strong? It’s not rate differentials.

Sentiment, Not Fundamentals, Behind the Rally

In our opinion, market sentiment—not fundamentals—drives the move above 1.14, specifically a shift away from the USD due to tariff uncertainty. That might have made sense if we were in the middle of an escalating trade war, but what we’re seeing now is a slow de-escalation.

Yes, tariffs may still impact US growth, but the IMF projects only a 0.5% impact in 2025. Even with that, it expects the US economy to grow by 1.8%, compared to just 1.0% in the Euro Area.

That’s not a macro backdrop that supports a strong Euro, in our view.

Conclusion: EURUSD Forecast Calls for a Reversion

To sum up: we view the current EURUSD level of 1.14 as unsustainably high in the long run. Our model suggests the pair should correct back to its long-term average of 1.085. We wouldn’t be surprised to see it trade below that level by the end of 2025.

This EURUSD forecast isn’t based on headlines or guesses — it’s grounded in long-term valuation, statistical trends, and macro alignment. That approach has worked well before, and we think it will again.