Does the euro still have room to appreciate in 2026? These major institutions have quite differing opinions.

Regarding the future trend of the euro, Wall Street’s predictions are indeed somewhat divided. Some see 1.30, others see 1.12. Who is right? It all depends on a core issue: the policy direction of the European and American central banks and the strength of their economies.

The European Central Bank remains on hold, while the Federal Reserve continues to loosen

On the policy front, both sides have established their directions.

On the ECB side, things are a bit awkward. Although the European economy remains resilient and inflation is easing, the growth outlook is less bright than the US. The market generally believes the ECB has already cut rates to the appropriate level, with Citibank even predicting that interest rates will stay at 2% until the end of 2027.

On the Fed side, the story is not over yet. After a series of rate cuts last year, there is still room in 2026. Goldman Sachs, Morgan Stanley, and Bank of America all believe the Fed will continue to cut rates twice, totaling a 50 basis point reduction. JPMorgan Chase and Deutsche Bank are more conservative, expecting only one 25 basis point cut.

This is the core contradiction: the European Central Bank remains on hold, while the Federal Reserve continues to loosen. The narrowing of the US-Europe interest rate differential provides a fundamental support for the euro.

Economic comparison: Germany’s backbone vs. US concerns

There is inconsistency within Europe, and disagreements within the US as well.

Germany is about to act. In 2026, Germany plans large-scale fiscal stimulus, which is a bright spot for the European economy. Political risks in France are still present, likely dragging down growth. Overall, the European economy has support but lacks balance.

The US economic outlook varies more significantly. US banks and Goldman Sachs are optimistic about strong US growth in 2026, but Moody’s ratings are cooling expectations: the US labor market is already showing signs of fatigue, and once the boost from AI diminishes, the economy could slow down.

This is the root of the disagreement.

Institutional split: Bullish vs. Bearish camps, each with their reasons

JPMorgan Chase, Bank of America, and Deutsche Bank belong to the bullish camp.

JPMorgan Chase believes that European economic growth combined with German fiscal expansion will be enough to gently push the euro higher. They expect EUR/USD to possibly reach 1.20 in Q2 2026, and if US economic data remains weak, it could even rise to 1.25.

Deutsche Bank’s logic is similar. Germany’s economic recovery and the potential peace agreement in the Russia-Ukraine conflict are positive catalysts for the euro. They forecast EUR/USD breaking through 1.20 in mid-2026 and reaching 1.25 by the end of the year.

On the other side, the bearish camp includes Standard Chartered, Barclays, and Citibank.

Standard Chartered’s concerns are more specific: if German fiscal stimulus fails to boost the economy as expected, the ECB may be forced to cut rates, which would negatively impact the euro due to the reverse interest rate differential. They expect EUR/USD to dip to around 1.13 in mid-2026 and further fall to 1.12 by year-end.

Barclays points out that the eurozone’s trade conditions are deteriorating, and growth and inflation expectations face downside risks. They forecast EUR/USD around 1.13 by the end of the year.

Morgan Stanley’s middle-ground approach: rise first, then fall

Interestingly, Morgan Stanley offers a different rhythm. They believe EUR/USD will show a “reverse V” pattern in 2026.

In the first half, Fed rate cuts will narrow the US-Europe interest differential, pushing EUR/USD up to 1.23, and in an optimistic scenario, possibly reaching 1.30. But in the second half, Europe’s weak fundamentals will re-emerge, while the US economy remains resilient, causing the euro to turn back and possibly fall to 1.16 by year-end.

What’s the outlook?

The key variables are two: whether the US economy can hold up, and whether German fiscal policy can stimulate Europe. The former is optimistic, which puts pressure on the euro; the latter is supportive, which provides backing.

In the first half of 2026, the bullish camp may have the upper hand, with 1.20-1.23 as a reasonable target. But what will happen in the second half depends on actual data, and it’s too early to say.

In any case, the euro is expected to fluctuate within the 1.12-1.30 range, and this consensus is already quite established. The only difference is which institution’s economic forecast you believe.