Euro: Outlook weakens as risks build – Rabobank

Rabobank's RaboResearch Global Economics & Markets discusses EUR/USD dynamics since the Iran war, highlighting how shifting expectations for Federal Reserve policy and the Euro’s underperformance have driven the pair.

Euro weighed by multi‑layered headwinds

"The turnaround from expectations of Fed easing to Fed tightening can account for much of the USD’s strong performance during the summer and into last month. However, in our view the lacklustre performance of the EUR has also played a part in driving EUR/USD in the months since the war commenced. Just as the attraction of the single currency likely underpinned flows out of the USD during parts of 2025, the EUR’s inability to draw strength from the hawkish position of the ECB since the start of the Iran war has likely helped underpin the USD."

"Even though the ECB brought forward its tightening cycle, and despite the resilience of the Eurozone economy this year, the market is concerned about growth risks in view of the Eurozone’s position as an energy importer. European political uncertainties are also likely contributing to the EUR’s lacklustre performance."

"Consequently, for many investors the EUR is likely appearing less like an alternative to the USD. By contrast, the rally in the USD at the start of the Iran war proved it retains its safe haven status, which many had started to doubt last year. In our view this is built around the greenback’s dominance in the global payments system which would take decades to challenge."