Bernstein: European FX Market Outlook
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Bernstein published its European foreign exchange market outlook on May 23, 2026, projecting near-term downside pressure on the euro against the US dollar. This outlook reflects the divergent monetary policy stances between a dovish European Central Bank and a resilient US economy maintaining the Federal Reserve's pause. The report forecasts the EUR/USD pair will decline to 1.05 by year-end 2026, before potentially recovering to 1.12 in 2027. The analysis suggests that if the ECB adopts a more dovish posture, the currency pair could fall further to 1.02.
Conversely, the British pound is expected to hold firm around 1.28 against the dollar through end-2026. This stability is underpinned by sticky UK services inflation, reported at 5.2%, which compels the Bank of England to moderate its rate-cutting pace relative to the ECB. Additionally, the Swiss franc is projected to appreciate as a safe-haven asset amid European political uncertainty, with a USD/CHF target of 0.88. The Swedish and Norwegian kronas may depreciate by 3% to 5%, dragged down by falling commodity prices.
The broader analytical framework emphasizes how central bank policy divergence drives capital flows and currency valuations. ECB rate cuts totaling 75 basis points in 2026 narrow the euro's interest rate advantage. Concurrently, political risks, including French fiscal debates and parliamentary elections, inject additional uncertainty premiums and exacerbate potential euro volatility.
Key exhibits
Exhibit 1
Exhibit 2
Exhibit 3
Exhibit 4
Exhibit 5
Exhibit 6
Exhibit 7
Exhibit 8
