The EUR/USD exchange rate surged to a 45-month high near 1.1830 this week before a slight pullback. Société Générale (SocGen) forecasts further medium-term dollar weakness, projecting the pair to reach 1.17 by the end of 2025. However, analysts warn that after a sharp decline, the dollar may see short-term rebounds before resuming its downward trend.
Key Factors Behind the Dollar’s Slide
1. Economic Risks & Inflation Pressures
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Rising import tariffs could stoke inflation while hurting growth, weakening dollar sentiment.
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Political pressure for lower interest rates persists, with concerns that former President Trump might push for a more dovish Fed—or even attempt to replace Chair Powell before 2026.
2. Global Investors Retreating from US Assets
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After years of over-investment in US markets, international capital is now diversifying away from the dollar.
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This shift could accelerate if US economic momentum slows relative to Europe.
3. Short-Term Dollar Relief Ahead?
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The dollar has already fallen over 10% in H1 2025, making it oversold in the near term.
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SocGen expects periodic short-covering rallies, but the long-term downtrend remains intact.
Long-Term Outlook: Dollar Index Could Fall Another 8%
Despite potential rebounds, SocGen maintains a bearish stance on the dollar, predicting:
✔ EUR/USD at 1.17 by December 2025
✔ Further 8% decline in the DXY (Dollar Index) over time
What This Means for Traders & Businesses
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Euro strength could benefit European exporters but hurt US companies with overseas earnings.
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FX volatility may persist, requiring hedging strategies for cross-border transactions.
