RBC has set a target of 1.24 for the EUR/USD exchange rate in 2026, with three main factors supporting the euro’s strength against the US dollar.
The first factor supporting a stronger euro, according to RBC, is the expectation that as the cost of “owning” declines with the rate of hedging on US assets, it will increase. This change in hedging behavior could contribute to upward pressure on EUR/USD trading.
RBC also highlights the continued expectation of asset rotation from US markets to European markets as the second key driver. This shift in capital flows will naturally support the appreciation of the euro against the dollar in the coming years.
The third factor cited by RBC is the prospect of stronger European economic growth in 2026, which fundamentally supports a higher valuation of the European currency relative to the US currency.
Despite these bullish factors, RBC acknowledges several obstacles to EUR/USD strengthening in the long term, including superior US productivity growth compared to Europe, the lack of comparable European alternatives to U.S. Treasuries, American dominance in the AI and technology sectors, and ongoing political risks within the European Union.
