Euro to Dollar Forecast: EUR/USD Consolidates as Two Major Drivers Conclude

March 19, 2025 - Written by Tim Boyer

STORY LINK Euro to Dollar Forecast: EUR/USD Consolidates as Two Major Drivers Conclude

EURUSD has rallied 5% to 1.09 in March. This was partly driven by US dollar weakness, but the primary driver was fiscal spending packages in the EU. Germany has now agreed its massive spending plan.

Ukraine/Russia negotiations have advanced but are being stalled by Russian demands.

The first of this week’s five central bank meetings took place on Wednesday in Japan with the BoJ. Rates were held steady, as expected, but the bank paved the way for another rate hike, although Governor Ueda would not commit to a set date. Indeed, the threat of tariffs from the US may make the central bank cautious over its hiking policy. Markets appear to have been positioned for a more hawkish outcome as the yen is lower following the meeting, and USDJPY is higher by 0.5%. As ING note:

“The BoJ statement showed that its assessment of inflation and growth hasn't changed much. However, there was much more emphasis on the uncertainties surrounding US trade policy. Governor Ueda also made several comments on tariff risks during his press conference. Ueda indicated that he would wait and see how the US tariff issues unfold, so markets may be betting more on a July hike than a May hike.”

The “wait and see” approach may be a common theme in the remainder of this week’s central bank meetings as uncertainty of tariffs hangs over decisions. This may change in April when the US Commerce Department releases its report on reciprocal tariffs and we will at least know which countries will be in the firing line. Any significant tariffs on Japan may prevent the BoJ from hiking again.

Later on Wednesday, the US Federal Reserve will announce its rate decision, with no change expected. Markets will focus on the Fed’s

Summary of Economic Projections (SEP), particularly the dot plot, which outlines policymakers’ forecasts for interest rates, growth, and inflation. Any significant revisions from December’s projections could reshape market expectations.

Markets expect dovish adjustments from the Fed, but a significant shift may be premature given that economic data remains solid and the impact of tariffs is still unfolding.

If the Fed holds its current stance and dot plot, the USD could strengthen, while stocks may face pressure. However, these moves may be temporary—rate cut expectations for May/June remain high. Further tariffs in April and potential economic softening could increase the chances of additional cuts later this year.

Euro In Need of New Drivers

The euro has made an impressive rally in March and is by far the best performing currency in the G7. EURUSD is trading at 1.09 after a gain of 5%. This was primarily driven by the massive fiscal spending packages rolled out across the EU in response to the US withdrawing support for Ukraine. The largest of these came from Germany as the new government pushed through a huge €500bn infrastructure fund and changes to the debt brake. This ran into some resistance but was finally concluded this week with agreement between CDU/CSU, SPD and the Greens.

Another key driver in the EU is the ceasefire between Ukraine and Russia which advanced on Tuesday when Putin and President Trump spoke on the phone. Putin agreed to temporarily stop attacking Ukraine’s energy infrastructure but made a series of demands for a full ceasefire, including the halt of all foreign support of Ukraine’s military. This is unlikely but is at least a starting point for further negotiations. While this is encouraging, the euro has not rallied further and fresh drivers may be needed to propel EURUSD over 1.10. A period of consolidation and rest now looks likely, especially now that markets are eagerly awaiting the next round of the trade war in early April, with the EU likely to be the focal point of US tariffs.

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TAGS: Euro Dollar Forecasts