The euro has remained steady around $1.175 as the US dollar starts 2026 on the back foot, following a robust 13.5% gain throughout 2025. With various analysts projecting further support for the euro, market participants are focused on upcoming US economic data and insights from the Federal Reserve to gauge whether the dollar's weak start will continue.
Significant developments impacting the euro include Bulgaria's planned accession to the eurozone on January 1, 2026, which is anticipated to enhance economic stability in the region. The European Central Bank (ECB) is also adopting a data-dependent policy approach, which could influence interest rates and thereby, the euro's performance. The eurozone's GDP is projected to grow by 1.6% in 2026, buoyed by fiscal measures in Germany and increased military spending across Europe. These factors create a positive economic backdrop for the currency.
Additionally, the ongoing geopolitical tensions, particularly the war in Ukraine, have affected the euro’s performance. The EU’s financial and military support for Ukraine and uncertainty surrounding energy supplies have led to fluctuations in the euro’s value. Although the energy crisis has imposed inflationary pressures, any resolution to the conflict could bolster investor confidence in the euro.
Currently, the EUR/USD is trading near 14-day lows at 1.1705, which is only 0.5% above its three-month average of 1.1642. This currency pair has traded within a stable range of 2.7%, from 1.1480 to 1.1790. Meanwhile, the EUR/GBP is facing pressure at 60-day lows close to 0.8707. This is slightly below its three-month average and has remained within a narrow range of 1.8%, from 0.8676 to 0.8833. In contrast, the EUR/JPY is performing better, currently at 183.8, which is 2.1% above its three-month average of 180.1, trading in a 5.3% range from 175.5 to 184.8.
The recent decline in oil prices, now at $60.82 and 3.2% below its three-month average, could also impact the euro indirectly, affecting inflation and trade balances. Analysts indicated that with oil prices exhibiting volatility, the euro may remain sensitive to shifts in global energy trends.
Looking ahead, the euro's outlook will hinge on continued economic recovery in the Eurozone, ECB policy decisions, and the resolution of geopolitical tensions. As these factors evolve, both businesses and individuals engaged in international transactions should stay alert to the possible fluctuations in exchange rates.
