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Goldman Sachs has raised its EUR/USD forecasts to 1.20 by year-end and 1.25 over the next 12 months, drawing parallels to the 2017 rally driven by global capital flows. However, unlike 2017 when the euro was deeply undervalued, the current move reflects a structural reassessment of the US dollar rather than renewed euro optimism.

Key Points:

Forecast Revisions:

  • Goldman now sees EUR/USD at:

    • 1.20 by end-2025

    • 1.25 over the 12-month horizon

  • Forecast upgrade comes amid signs of a slowing US economy and changing investor allocations.

2017 Comparison:

  • In 2017, global growth optimism and capital inflows into the Eurozone fueled EUR strength.

  • Rate differentials remained stable, but a shift in fund flows provided upward pressure.

Current Drivers: It's About the USD

  • Today, euro strength is less about Eurozone fundamentals and more about dollar weakness.

  • Preliminary fund flow data suggests rising investor interest in reallocating away from USD assets.

Valuation Contrast:

  • In 2017, the euro started from a deeply undervalued level—today it is broadly overvalued.

  • This limits the upside potential and makes the current move more about dollar repricing than euro revaluation.

Not Another 2002–2004:

  • The structural USD shift supports EUR/USD upside but lacks the valuation tailwind seen in past long-cycle rallies.

  • As a result, Goldman views the rally as more contained and measured compared to earlier episodes of sustained dollar depreciation.

Conclusion:

Goldman Sachs sees further upside for EUR/USD, driven by broad-based USD weakness and shifting global capital flows. While there are echoes of 2017, the current rally is more about a reassessment of US economic leadership and dollar valuations than a euro-area story. As such, 1.25 is possible, but the path higher will be steadier and more limited than in prior cycles.

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Source: Forex Live