Nomura International stated that the euro is "clearly poised to benefit" as traders price in the possibility of a European Central Bank (ECB) rate hike next year. However, foreign exchange strategist Dominic Bunning noted that even if a hike occurs, its limited scale makes a euro rally beyond the 1.20 USD level unlikely.

Bunning wrote in a report, "Our baseline expectation is for the ECB to hold rates steady in 2026, but the euro would clearly benefit if markets start pricing in more hawkish expectations." He added that currencies like the Australian dollar, New Zealand dollar, Canadian dollar, and Swedish krona have also gained to varying degrees from rate hike speculation.

The euro has risen about 1% against the dollar this week after hawkish remarks from ECB official Isabel Schnabel led traders to assign over a 50% chance of a rate increase next year.

Bunning said, "There is room for the euro to rise, but a move significantly above 1.20 would likely require a more structural shift in market sentiment."