Outlook
The euro remains sensitive to geopolitical risk and the path of European policy. Russia-Ukraine tensions add risk premium, while the ECB kept rates at 2% on Feb 5 amid an inflation backdrop that cooled to 1.7% in January. That softer inflation fuels questions about when the ECB will cut rates, even as resilience in the euro area supports the currency. Bulgaria’s adoption of the euro strengthens eurozone credibility, but is unlikely to drive near-term moves. Against a backdrop of a stronger US dollar at times, EUR/USD sits around 1.1875, near the upper end of its recent range and above its 3-month average of 1.1712. Oil sits near 70, a level that sustains energy market dynamics and inflation risks in Europe. Overall, the euro could wobble within a around-range environment as data and policy signals evolve.
Key drivers
- ECB policy path and the inflation trajectory in the euro area; softer inflation supports potential policy easing expectations, while resilience keeps a cautious stance on policy normalization.
- US dollar strength and broader risk sentiment; EUR tends to weaken when the USD strengthens.
- Geopolitical tensions related to Russia-Ukraine and energy supply dynamics; these keep risk premiums in play for European assets.
- euro area expansion and structural shifts (e.g., Bulgaria joining the euro area) that bolster euro credibility but have limited near-term price impact.
- Cross‑rate dynamics and commodity moves; oil at about 70 supports energy outlook but adds to inflation concerns, influencing the ECB’s stance and euro positioning.
Range
EUR/USD 1.1875 (3-month average 1.1712; 4.5% range from 1.1516 to 1.2031; current level about 1.4% above the 3-month average)
EUR/GBP 0.8718 (14-day highs; near its 3-month average; 3-month range from 0.8628 to 0.8833)
EUR/JPY 181.9 (60-day low; 0.5% below the 3-month average of 182.9; 3-month range from 179.6 to 186.2)
Oil (Brent Crude OIL/USD) 70.26 (90-day high; 10.3% above 3-month average of 63.72; 3-month range from 59.04 to 70.26)
What could change it
- Unexpected ECB policy moves or hawkish/dovish language from policymakers
- A surprise eurozone inflation or growth print that shifts the balance of rate-cut expectations
- Major shifts in US macro data or Fed guidance that alter USD strength
- Escalation or de-escalation in Russia-Ukraine tensions affecting energy and risk sentiment
- Further oil price moves that feed into euro area inflation dynamics and growth outlook
