Euro poised to strengthen as diverging US–EU policy paths reshape outlook: EURUSD forecast

The euro is set to appreciate meaningfully over the next two years, according to Bank of America, as investors begin to price in diverging macroeconomic and policy trajectories in the U.S. and eurozone.

In a note to clients, BofA strategists outlined a constructive outlook for the single currency, projecting it to reach $1.15 against the U.S. dollar by the end of 2025, and extend gains to $1.20 by the end of 2026.

The bank sees two key catalysts behind the expected move: potential stagflation risks in the U.S. under a second Trump administration, and structural tailwinds emerging from a shift in European fiscal policy.

BofA expects a combination of renewed tariffs and fiscal tightening to weigh on U.S. growth while keeping inflation pressures elevated — a scenario reminiscent of stagflation.

In contrast, the outlook for Europe is becoming more supportive. BofA points to signs of a shift in Germany’s traditionally cautious fiscal stance, with increased public investment and defence spending likely to support growth across the eurozone. These reforms, alongside broader EU-level fiscal coordination, could mark a structural inflection point for the region’s economic resilience.

This article was written by Eamonn Sheridan at www.forexlive.com.