Foreign exchange strategists at Westpac have revised their Euro (EUR/USD) and Pound Sterling (GBP/USD) forecasts higher against the US Dollar, citing structural US risks and stronger-than-expected growth in Europe and the UK. 

The bank now sees EUR/USD at 1.16 and GBP/USD at 1.36 by late 2026, up from current levels near 1.12 and 1.32, respectively.

Euro And Pound Sterling Forecasts Lifted As Dollar Weakness Deepens: Westpac

“The US dollar slipped into a 98.2–101.0 range... this move could be interpreted as predicting the US is simply returning to the pack after an exceptional period,” says Elliott Clarke, Head of International Economics at Westpac.

This view mirrors recent commentary from UBS’s Constantin Bolz, who argued that policy divergence and reduced Fed credibility are weighing on the USD. 

“As the Fed embarks on a new easing cycle while the ECB and other central banks pause... the USD should come further under pressure,” Bolz noted, forecasting EUR/USD at 1.18 by March 2026.

Westpac’s upward revision follows upgraded 2025 GDP growth forecasts: Eurozone from 0.7% to 0.9%, and the UK from 0.6% to 1.0%, reflecting Q1 data surprises and large-scale fiscal initiatives in Germany and across Europe.

“Off balance sheet spending on infrastructure and additional sizeable defence spending now confirmed,” Clarke adds.

The upgrade to the UK outlook also aligns with Rabobank’s Jane Foley, who recently stated: “We forecast a move to EUR/GBP 0.87 on a 9-to-12-month view,” citing the pound’s lagging position relative to the euro amid UK fiscal constraints.

Importantly, Westpac flags that a full reset in the dollar to its 20-year DXY average of 90.1 could push EUR/USD to 1.24 and GBP/USD to 1.45, especially if markets lose confidence in US assets amid persistent political risk.

While ING this week noted that “the dollar remains more beholden to trade updates and hard data,” the broader consensus across institutional research is now that USD rallies are likely to be capped without a sustained improvement in fundamentals or credibility.

In Westpac’s words: “We have brought forward and modestly scaled up the appreciation forecast for Euro and Sterling.” 

The risks, however, remain skewed further to the upside.

https://www.exchangerates.org.uk/news/43007/2025-05-09-euro-pound-sterling-forecasts-lifted-as-dollar-weakness-deepens-westpac.html

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MEANWHILE: https://www.youtube.com/watch?v=AHjM9HdgIZI

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