Diverging Rate Hike Paths Between Europe and the US: Wall Street Banks Collectively Cut Euro Target to 1.10
Claire Weston
JPMorgan, Morgan Stanley, and BNY Mellon have all cut their euro-dollar targets to 1.10 — a 3%+ drop from the current 1.1389 — as a widening Fed-hawkish, ECB-dovish rate gap reshapes FX positioning across Wall Street.
Why are Wall Street banks suddenly bearish on the euro?
JPMorgan cut its mid-2027 target to 1.10; RBC expects the pair to hit that level by end of next year.
Bank of America lowered its target from 1.20 to 1.15 but called its overall euro stance neutral; Wells Fargo also revised down.
This means → This is not one or two houses drifting. Sell-side consensus is shifting fast, pulling the broader market forecast — still pointing to 1.20 next year — steadily lower.
How wide is the rate divergence?
New Fed Chair Kevin Warsh signaled zero tolerance for high inflation at his first meeting, triggering aggressive bets on rate hikes this year.
ECB President Lagarde, after delivering a single hike, said no stronger response to Middle East spillovers was needed — inflation is expected to return to target over the medium term.
In plain terms = The Fed is pressing the accelerator (hiking), while the ECB is easing off the brake (signaling it's done). When two central banks pull in opposite directions, capital flows toward the higher yield — the dollar.
What is the options market saying?
The one-year risk reversal — an options gauge of whether the market leans bullish or bearish on a currency — shows euro put demand at its highest since March 2025.
This means → The cost of hedging or betting on further euro weakness is climbing. Real money is already pricing in a weaker euro.
The euro was rallying at the start of the year — what changed?
Early in the year, the euro broke above 1.20, a near-five-year high that worried European policymakers about an overly strong currency.
Then the Iran war broke out; surging oil prices drove capital into the dollar as a haven, and the ECB's cautious stance extended the slide.
SocGen chief currency strategist Kit Juckes said: "The euro rally is essentially over. An energy crisis is inevitably euro-negative." He compared the current situation to the 2022 post-Ukraine energy shock that hammered the eurozone economy.
What exactly are the bank strategists saying?
Morgan Stanley strategist David Adams: "As medium-term investors unwind structural dollar shorts, EUR/USD can easily reach 1.10 — and momentum traders are likely to pile in."
BNY Mellon's Jeff Yu argued the ECB should not have hiked at all: "The hike drags on growth and actually weakens the euro outlook. There's a chance of a move below 1.10, but we won't chase it aggressively."
Wells Fargo's Marcus Jennings: "Dollar-long momentum is extremely strong. Going against this trend is very difficult."
What does this mean for ordinary investors?
The euro-bull consensus is crumbling; whether it can rebuild before the Fed's rate path becomes clear is the key variable for what comes next.
In plain terms = If you hold euro-denominated assets or plan to exchange currency, Wall Street's signal is unambiguous — don't count on a euro rebound in the near term. Wait at least until the Fed's direction is confirmed before making a call.
Content is for reference only, not financial advice.