EUR/USD at 1.1440: Why ABN AMRO Cut Its Forecast and What’s Driving the Euro vs. Dollar

Five Key Factors Driving EUR/USD Near 1.1440

1. Weak US June Jobs Report — A Cooling Labor Market

The Bureau of Labor Statistics confirmed that nonfarm payrolls rose by only +57,000 in June 2026 and the unemployment rate edged down to 4.2% . That is a dramatic slowdown from the 147,000 jobs added in June 2025 . Prior two months were revised lower by a combined 74,000 . This weaker-than-expected data prompted financial markets to dial back expectations for a near-term Fed rate hike . A softer US labor market reduces dollar-supporting rate hike probabilities, but the immediate EUR/USD impact has been muted — partly because the weak report also flags US recession risk that could weigh on global growth and the euro.

2. ECB Hawkish Tilt vs. Fed Policy Divergence

On June 11, 2026, the European Central Bank became the first major central bank to resume tightening in 2026, raising its deposit facility rate by 25 basis points to 2.25% . The move was driven by energy-cost-led inflation from the Iran conflict . Markets anticipate at least one or two additional hikes, potentially bringing the rate toward 2.50% by September .

In contrast, the Federal Reserve faces a cooling labor market. While Bank of America projects three Fed hikes in H2 2026, the weak June jobs data has reduced conviction in that path . This widening policy divergence — ECB tightening while the Fed may hold or hike less aggressively — is a euro-supportive factor in the medium term, though near-term the dollar still benefits from rate differentials.

3. Sticky Eurozone Inflation — Not Returning to Target Until Late 2027

The ECB's June 2026 staff projections raised the inflation outlook significantly. Headline inflation is now expected to average 3.0% in 2026 and 2.3% in 2027, with the 2% target not reached until 2028 . The ECB's Survey of Professional Forecasters for Q2 2026 showed HICP inflation expectations "markedly revised upwards" for 2026 and 2027 . Core inflation (excluding energy and food) is expected to run at 2.5% in both 2026 and 2027 . This persistence underpins the hawkish ECB stance and supports the euro via higher rates.

4. Energy Supply Risks — The Iran Conflict's Shadow

A key driver of the ECB's June rate hike was the Iran conflict and associated energy price spikes. Reuters reported that the ECB acted to "nip war-driven inflation in the bud" and prevent energy cost escalation from feeding into broader eurozone inflation . The Guardian similarly noted that the rate increase was a response to "escalating inflation driven by the ongoing conflict in Iran" . Ongoing European energy supply risks — including potential disruptions to Middle Eastern oil and gas flows — create a persistent upside risk to inflation, further reinforcing the ECB's hawkish bias and supporting the euro via higher rates.

5. Political Risks — French and US Elections Capping Upside

ABN AMRO's Bill Diviney explicitly cited "slightly less upside" for EUR/USD after incorporating:

• French election risks — political uncertainty in the eurozone's second-largest economy
• US election risks — potential policy shifts affecting trade and fiscal outlook

The bank still expects broad dollar weakness long-term (its BEER model values EUR/USD around 1.23), but trimmed near-term targets as these political headwinds cap euro gains .

Summary Table

What This Means for EUR/USD Going Forward

The euro is caught between a hawkish ECB that supports it via higher rates and political/energy uncertainties that cap its gains. ABN AMRO's 1.18 year-end 2026 forecast is in line with the Reuters poll median (1.17–1.18), though slightly below the broader consensus median of 1.23–1.24 cited by some banks . If the ECB follows through with a September hike to 2.50% and the Fed hesitates due to labor market weakness, the policy divergence could push EUR/USD toward 1.18 or higher by year-end. But if energy prices continue to spike or political uncertainty intensifies, the upside may remain capped.