Euro expected to appreciate against the dollar by 2027

On Friday, the euro exchange rate reached $1.1052 in international markets, down 0.03% from Thursday's closing level, according to Bloomberg data.

Exchangerates.org.uk reported this month that the Italian bank UniCredit forecasts an exchange rate of $1.14 for the fourth quarter of 2026 and $1.16 for the second quarter of 2027. The bank's projection for mid-2027 places the euro approximately 5% above Friday's quoted value.

The bank anticipates that the dollar will lose some of its appeal as the yield differential between U.S. and German government bonds narrows.

• Potential headwinds for the euro's rise

UniCredit estimates that the yield on 10-year U.S. Treasury notes will fall to 4.75% by the second quarter of 2027, compared to 3.30% for their German counterparts. This would mean that U.S. bonds offer a yield 1.45 percentage points higher than German bonds-a smaller gap than the one the bank anticipates for the final quarter of 2026.

"If the upward trend in U.S. bond yields continues to moderate-particularly looking ahead to 2027-the U.S. dollar could lose some of its strength," UniCredit indicates. The Italian bank expected the euro to receive more substantial support following the recent narrowing of this spread, especially since the pressure on French public debt has also eased. However, the bank's analysts believe that political uncertainty elsewhere in Europe is limiting investor appetite for the single European currency.

UniCredit notes: "Conversely, mounting political tensions within the eurozone are creating a risk premium that weighs increasingly heavily on the euro. Developments in the conflict between Russia and Ukraine, as well as the risk of fresh tensions in the Middle East following the U.S. midterm elections, are two additional factors that could hinder any attempt at a recovery for the euro/dollar pair."

• Positive U.S. labor market data

The U.S. dollar was already on the rise prior to the release of U.S. labor market data this month. At the end of the first week of November, Scotiabank reported a 0.4% decline in the euro, driven by volatility in stock markets, which prompted investors to shift their focus toward the U.S. currency. The bank also warned that a prolonged sell-off in the technology sector could slow economic growth and reduce the likelihood of further interest rate hikes by the Federal Reserve (Fed). The euro has fallen against the US dollar-which has generally strengthened-as investors turn back toward the US currency amid global stock market volatility. However, the correction in the technology and artificial intelligence sector poses certain risks for the dollar: markets are beginning to price out the risk of a more restrictive monetary policy from the Fed, while yields on short-term US securities are reacting to the prospect of slower economic growth and easing inflationary pressures.

Subsequently, the US labor market report indicated that employers added 165,000 jobs in October-more than double the consensus forecast of 70,000, as noted by Scotiabank. Following a revision of the data, an additional 84,000 jobs were added to the totals for August and September.

Given the current situation, analysts anticipate that the Fed will consider another interest rate hike in December.

• Credit Agricole anticipates a more modest recovery for the euro

Credit Agricole Corporate & Investment Bank forecasts an euro/dollar exchange rate of $1.14 for June 2027-two cents below UniCredit's estimate for the same period, according to exchangerates.org.uk. Even if France reaches a budget agreement, the bank anticipates that high energy prices and tariffs imposed by the U.S. will exert pressure on European exports. Lower export revenues would mean that companies have less foreign currency available to convert into euros.

"High global energy prices, U.S. tariffs, and policies aimed at boosting growth driven by domestic demand within the eurozone could reduce the volume of European net exports, thereby weakening corporate net demand for the euro. These factors may hinder a significant recovery of the euro, even if the current fiscal crisis in France begins to ease," according to Credit Agricole.

Given the prospect of higher interest rates in the eurozone, Credit Agricole stops short of predicting a sharp decline, noting: "We remain cautious regarding the euro/dollar pair, but we do not expect an aggressive depreciation; we believe that further monetary policy tightening by the ECB could, to some extent, limit downside risks in the coming months."