StanChart Sees EUR/USD Hitting 1.16: A Weaker Dollar, Stronger Euro in 2025?

Standard Chartered (StanChart) has revised its outlook for the U.S. dollar, projecting a notable shift in the EUR/USD exchange rate. The bank now forecasts the pair to reach 1.16 by the end of Q2 2025, a significant upward revision from its earlier estimate of 1.06. This bullish call on the euro reflects broader macroeconomic and policy dynamics reshaping global currency markets. Let’s dissect the drivers behind this forecast and what it means for investors.

The Revised Forecast: A Stronger Euro Narrative

StanChart’s upgraded EUR/USD target of 1.16 marks a sharp reversal from its prior bearish stance. The bank now expects the euro to outperform the dollar amid a combination of Fed rate cuts, European fiscal stimulus, and shifting geopolitical risks. A key assumption is that the Federal Reserve will ease monetary policy aggressively in response to easing inflation, weakening the dollar. Meanwhile, the European Central Bank (ECB) is expected to follow suit with its own rate cuts, though StanChart emphasizes that the ECB’s actions will be more data-dependent.

The revised forecast also aligns with StanChart’s broader view of a “risk-on” global environment, where higher-beta currencies like the euro gain favor over safe-haven assets. This shift is underpinned by $1.3 trillion in projected fiscal stimulus in Europe, including Germany’s landmark reforms to exempt defense and infrastructure spending from fiscal rules. These measures, unlocking €500 billion over 12 years, are expected to boost Germany’s GDP growth by 2% annually—a critical tailwind for the eurozone.

Key Drivers of the Forecast

1. Fed Policy Cuts and Dollar Weakness
   StanChart’s central scenario assumes the Fed will cut rates in June 2025, driven by cooling inflation. This would weaken the dollar, particularly if the ECB also eases policy but at a slower pace. The bank notes that aggressive Fed easing—such as rate cuts in response to a severe economic downturn—could push the euro even higher.

2. European Fiscal Stimulus
   Germany’s reforms, combined with EU plans to boost defense spending by up to €800 billion over four years, are central to StanChart’s bullish euro thesis. While these policies may not deliver immediate growth (implementation lags could delay impacts until 2026), they signal a long-term commitment to economic expansion.

3. Geopolitical Catalysts
   The report highlights U.S. policy uncertainty as a wildcard. While StanChart expects President Trump’s tariff deals to stabilize fiscal revenue projections, aggressive unwinding of protectionist policies—such as rapid tariff reductions—could trigger dollar appreciation. Conversely, a “risk-on” environment where trade tensions ease further would amplify euro gains.

Risks to the Outlook

StanChart’s forecast isn’t without headwinds. First, the ECB’s reluctance to cut rates before June 2025 could limit euro upside. The bank calls an April ECB rate cut a “major surprise,” noting it would push EUR/USD below 1.07. Second, European stimulus implementation delays remain a concern. While Germany’s reforms are a game-changer, the actual spending ramp-up could take years, delaying the euro’s fundamental support.

On the U.S. side, fiscal dynamics pose risks. StanChart warns that U.S. borrowing costs and tax hikes (e.g., ING predicts tax increases by autumn 2025) could destabilize the dollar’s baseline stability. A sudden spike in risk premiums for U.S. assets would counteract the “risk-on” narrative.

The Bottom Line: A Euro Bull Story, but with Caveats

StanChart’s EUR/USD target of 1.16 by Q2 2025 hinges on a synchronized easing cycle, European fiscal firepower, and geopolitical stability. The bank’s bullish stance is reinforced by €500 billion in German infrastructure spending and a projected 2% GDP boost for Germany—a critical eurozone pillar. However, execution risks and U.S. policy uncertainty mean investors should tread cautiously.

If the euro reaches 1.16, it would mark a significant turnaround from its 2023 lows, where it dipped below 1.05. But StanChart’s analysis also highlights a broader theme: the dollar’s dominance is waning, and currencies tied to growth-oriented fiscal policies—like the euro—are poised to benefit.

In conclusion, StanChart’s forecast is both ambitious and plausible, assuming the outlined conditions materialize. The euro’s path to 1.16 will depend on the ECB’s patience, the Fed’s urgency, and whether Europe can deliver on its fiscal promises. For now, the market’s eyes are on Q2 2025—and the data will decide whether this becomes a historic turning point for the currency pair.