Bank of America has kept most of its US dollar forecasts unchanged, but the bank now sees a stronger chance of gains for the euro and further weakness for the dollar in the near term.
The view came on Thursday, August 20, 2026, as the US currency faced fresh pressure in global markets. The dollar fell to a three-month low against the euro after the US Treasury announced a larger plan for long-term bond buybacks.
Bank of America, often called BofA, did not make a major change to its core EUR/USD forecasts. Instead, the bank pointed to a gap between its official forecasts and the risks it sees in the short term.
BofA still expects EUR/USD at 1.12 by the end of the third quarter, 1.15 by the end of 2026, and 1.20 by the end of 2027. Those figures show that the bank has not fully changed its long-term dollar view, even as recent market moves have created more room for the euro to rise.
EUR/USD Rises Above 1.17
The euro has had a strong session against the US dollar.
EUR/USD reached 1.1710 on August 20, its highest level since May. The pair later eased to about 1.1678, but the move above 1.17 still showed strong demand for the euro.
A Reuters market analysis also noted that EUR/USD rose to 1.1703 earlier in the session. The move took the pair above the 1.1696 to 1.1694 area, which was seen as an important technical level.
The euro has gained as traders have reduced their faith in the US dollar. The latest move also came after the US Treasury said it would double its buybacks of long-term US debt.
The Treasury plans to buy at least $4 billion per operation in bonds with maturities from 10 to 30 years. The move aims to reduce pressure in the long end of the US bond market after a sharp rise in long-term yields.
Why the Dollar Came Under Pressure
The Treasury decision had a fast effect on the currency market.
Long-term US bond yields had risen sharply before the announcement. The 30-year Treasury yield reached 5.337%, its highest level in 19 years. After the Treasury announcement, the yield fell toward 5.21%.
The dollar often gets support from higher US yields because higher returns can make US assets more attractive to global investors.
This time, the market reaction was different.
The Treasury’s decision helped reduce long-term yields, which removed part of the dollar’s support. At the same time, investors had fresh concerns about the US fiscal position and the size of government debt.
That combination gave the euro more room to rise.
The dollar index fell to 98.558, its lowest level since May 14, before it recovered part of the loss. The euro reached $1.171, while sterling also rose to a six-month high.
BofA Keeps Its Main EUR/USD Forecasts
BofA’s latest view is interesting because the bank has not simply raised its formal EUR/USD targets.
Its forecast remains 1.12 at the end of the third quarter, 1.15 at year-end, and 1.20 by the end of 2027.
This means the bank expects the euro to trade below its current market level later this year, even after the pair moved above 1.17 on August 20.
That may seem unusual at first.
However, a forecast is not the same as a statement about every short-term move. BofA can expect EUR/USD to reach a higher level for a short period while still believe that the pair may move lower later.
This is why the bank’s latest comment is important. BofA has not fully turned bullish on the euro for the long term. Instead, it has warned that the risks in the near term have shifted toward a stronger euro and a weaker dollar.
The Dollar Has More Risks Ahead
Several factors now create pressure for the US currency.
The first is the US bond market. Long-term yields have become a major concern for investors. The Treasury’s larger buyback plan may reduce some pressure, but it also raises questions about the government’s role in the bond market.
The second factor is US fiscal policy.
The United States now has a government debt level above $40 trillion, which has added to concerns about long-term borrowing costs and the fiscal position. Market analysts have also raised questions about whether continued fiscal pressure could hurt confidence in the dollar.
The third issue is Federal Reserve policy.
The market has become less certain that the Fed will raise rates in September. At the same time, the Fed’s July meeting minutes showed concern about persistent inflation. This has created a difficult mix for traders.
If US rates stay lower for longer, the dollar may lose some of its yield advantage.
The Euro Has Its Own Support
The euro is not rising only because of dollar weakness.
Expectations for another European Central Bank rate increase have also helped the single currency. Markets continue to assess inflation pressure in the euro area as they consider the path for ECB policy.
Higher European rates can make euro assets more attractive compared with currencies where traders expect lower rates.
This does not guarantee a lasting euro rally. Europe also faces its own risks, especially from high energy prices and geopolitical uncertainty.
Still, the combination of possible ECB policy support and broad dollar weakness has created a better short-term setup for EUR/USD.
Technical Levels Become More Important
The recent price action has also placed attention on important technical levels.
EUR/USD crossed above 1.1694, a level linked to the correction of the May-June fall from 1.1794 to 1.1325. Reuters market analysis said a move above that area could open the path toward the May high near 1.1794.
Another Reuters market analysis placed the May peak near 1.1797 and noted that the pair had reached 1.1703 on August 20.
This makes the 1.17 area important for the next stage of the euro’s move.
If EUR/USD stays above this level, traders may focus on the May high near 1.1794 to 1.1797.
If the pair falls back below 1.17, the latest move could lose some force. A stronger dollar could then push the pair back toward lower support levels.
BofA Also Changes Its Yen View
BofA’s currency report was not limited to EUR/USD.
The bank also revised its USD/JPY forecasts lower. It cited changes in Japan and a higher risk of further coordinated intervention in the currency market.
BofA had published a report titled “FAQs on coordinated yen-buying intervention” on August 5, 2026.
The lower USD/JPY forecast shows that the bank sees more risk for the US dollar across several major currency pairs, not only against the euro.
Japan has remained a key focus for FX traders because the yen has faced sharp moves in recent months. Any fresh intervention or stronger policy action from Japanese authorities could put more pressure on USD/JPY.
USD/CAD Forecast Also Moves Lower
BofA also cut its USD/CAD forecast.
The bank now sees the pair near 1.40-type levels for the rest of 2026 and into 2027. The view is based in part on the expectation that the Bank of Canada is more likely to keep rates unchanged over the medium term.
This is another sign that BofA sees a more difficult road for the dollar across major currency markets.
However, the bank has not abandoned its wider dollar forecasts. Most of its bilateral forecasts remain unchanged.
That makes its latest message more balanced than a simple call for a broad dollar collapse.
What Traders Should Watch Next
The next major test for the dollar will come from US monetary policy and the bond market.
Markets are waiting for Federal Reserve Chair Kevin Warsh’s upcoming Jackson Hole speech. Investors want more information about inflation and the future path of US interest rates.
The Fed’s message could have a major effect on EUR/USD.
A more hawkish tone could give the dollar some relief. If the Fed shows less concern about future rate hikes, the dollar could face more pressure.
US Treasury yields will also remain important. If long-term yields fall further, the dollar could lose another source of support. If yields rise again, the currency could regain some strength.
European inflation and ECB policy will matter as well. Stronger price pressure could increase the chance of another ECB rate increase and give the euro extra support.
The Bigger Message From BofA
Bank of America’s latest view does not say that EUR/USD must rise without pause.
Instead, it highlights a clear change in the balance of risks.
The bank still expects EUR/USD at 1.12 by the end of the third quarter, 1.15 by year-end and 1.20 by the end of 2027. Yet it also sees near-term upside risks for the euro and downside risks for the dollar.
That distinction matters.
The euro has already moved above 1.17, while the dollar has fallen to a three-month low. The Treasury’s new bond buyback plan, US fiscal concerns and uncertainty over Federal Reserve policy have all added pressure to the US currency.
For now, EUR/USD remains at the centre of the dollar story.
A sustained move above 1.17 could put the May high near 1.1794 to 1.1797 in focus. A clear failure above that area could bring the pair back down and restore some dollar demand.
The immediate direction will depend on US yields, Federal Reserve signals and ECB expectations. For traders, the key message from BofA is simple: the dollar may still have a longer-term recovery path in its forecasts, but the risks have shifted against it in the near term.
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