Synopsis:

MUFG expects EUR/USD to enter a consolidation phase after rallying over 9% across April and May. While the risk of increased US tariffs on EU exports remains, the bank believes a 20% tariff—its base case—won’t derail the euro’s upward trajectory. A 50% tariff would present a downside risk, but MUFG still forecasts a steady rise through year-end.

Key Points:

• Strong EUR Rally: EUR/USD gained over 9% in April–May; MUFG sees this rally pausing near-term.

• Tariff Assumptions: MUFG expects a 20% tariff increase on EU goods but argues this won’t materially weaken the euro. A 50% hike would pose more downside risk.

• EUR/USD Forecasts:

  • End-Q2 2025: 1.12

  • End-Q3 2025: 1.15

  • End-Q4 2025: 1.18

Conclusion:

MUFG maintains a bullish medium-term outlook on EUR/USD despite looming tariff uncertainty. The euro's strength is seen as resilient, with only a sharp escalation in trade tensions—such as a 50% tariff—likely to disrupt the upward trajectory.