Recent market indications show that as investors anticipate a faster pace of interest rate hikes in the United States compared to Europe for the remaining period, major Wall Street banks are revising their strategies and no longer betting on a stronger euro. Institutions, including several prominent investment banks, analyze that the euro could continue to fall by more than 3% over the next year, with the exchange rate potentially reaching the $1.10 mark.

The euro exchange rate hit a one-year low this month. Traders are beginning to price in expectations that the Federal Reserve may raise rates in 2026, while ECB rate hike expectations have not been fully digested by the market. This contrasts sharply with market sentiment at the beginning of the year, when policymakers worried the euro was too strong, with the exchange rate once breaking through 1.20 to hit a nearly five-year high. Subsequently, the situation reversed. Geopolitical tensions drove oil prices up, triggering a market flight to the dollar for safety. Coupled with the ECB's cautious stance, the euro has remained under continuous pressure.

Strategists point out that as medium-term investors unwind structural short-dollar positions, the exchange rate could easily fall to 1.10, and speculative funds may follow further when momentum strengthens. Several financial institutions have significantly lowered their euro target prices, with some expecting this level to appear by the end of next year. Although exchange rate forecasts often adjust with the market, this reduction is significant and begins to challenge market consensus. Options market sentiment has also turned clearly pessimistic, especially on long-term horizons. Indicators measuring market sentiment and positions show that current market bearishness on the euro has reached its most severe level since March 2025, requiring traders to pay higher costs to hedge risks.

A bank strategist stated that although the dollar might enter a period of consolidation in the short term, it is difficult to reverse this market momentum under the current environment. The momentum behind this trend stems from recent changes in interest rate expectations. Before the new Federal Reserve Chair's first meeting, traders worried they might be influenced by pressure from the president to lower borrowing costs. However, results indicate the central bank will not tolerate high inflation, prompting traders to increase bets on possible rate hikes this year. Meanwhile, the ECB President stated that after hiking rates once this month, there is no need for a more aggressive reaction to the impact of the Middle East conflict, as inflation is expected to return to target levels over the medium term.

Some strategists believe the ECB's rate hike measures further weaken euro support due to the impact on economic growth. Although seeing the exchange rate might fall below 1.10, they will not actively pursue this trade. Some who believe the Fed will pause hikes or hold a pessimistic view on the dollar trend for next year remain relatively optimistic about the euro. Although some institutions have lowered expectations, they still hold a neutral stance on the euro. Nevertheless, the number of people expecting the euro to rise is decreasing rapidly. A chief FX strategist stated that the euro's bullish run is basically over, and the energy crisis is certainly not a positive for the euro, comparing the current situation to 2022, when war broke out and energy prices soared, severely weakening the eurozone economy.