Outlook
The euro remains subdued as ECB easing speculation shapes sentiment. A key test is today’s euro area GDP release; a softer-than-expected Q4 2025 print could weigh on EUR, while a firmer print might limit downside. Longer term, inflation is expected to ease toward about 1.7% in 2026, which supports a cautious policy stance. Bulgaria’s join-the-euro-area move strengthens euro credibility and market depth, but near-term moves will hinge on data and ECB guidance. Current levels around 1.1854 per EUR/USD sit within a broad 1.1480–1.2031 range, underscoring a still-rangebound environment unless policy or data surprise. Oil near 69.09 USD per barrel adds energy-price risk that can influence growth and inflation dynamics.
Key drivers
- ECB policy outlook: near-term hold is expected, with markets noting a possibility of a rate hike later in 2026; this stance tends to cap upside for the euro unless inflation pressures shift. (Markets/BNP Paribas reference indicate the same view.)
- Growth and inflation: euro-area inflation projected to ease to around 1.7% in 2026, supporting a gradual normalization but keeping macro risks in check ahead of data prints.
- GDP data risk: today’s Eurozone GDP release could tilt the euro if Q4 growth undershoots expectations.
- Structural and political factors: Bulgaria’s adoption of the euro on January 1, 2026, and ongoing progress on the digital euro project support longer-term euro area credibility and policy flexibility.
- Geopolitics and energy: the war in Ukraine and energy-market disruptions continue to influence sentiment and growth, with energy prices feeding through to inflation and demand.
- Current price anchors: EUR/USD at 1.1854 (about 1.5% above its 3-month average of 1.1674) within a 1.1480–1.2031 3-month range; EUR/GBP near 0.8657 (90-day low, ~0.9% below 3-month avg 0.874, range 0.8657–0.8833); EUR/JPY at 183.4 (0.7% above 3-month avg 182.1, range 176.4–186.1); Oil at 69.09 USD (9.4% above 3-month avg 63.16, range 59.04–69.09; 90-day high).
- Oil price trend: oil at 69.09 USD, up sharply from recent levels, signaling continued energy-price risk to growth and, by extension, to euro performance.
Range
EUR/USD: 1.1480–1.2031
EUR/GBP: 0.8657–0.8833
EUR/JPY: 176.4–186.1
Brent Crude OIL/USD: 59.04–69.09
What could change it
- Surprise shift in ECB policy: a surprise hawish or dovish surprise, or new forward guidance, could quicken EUR moves.
- Eurozone data surprises: stronger or weaker GDP, inflation, or unemployment prints than expected.
- US data and policy expectations: significant deviations in US data or Fed signaling can drive USD strength or weakness, impacting EUR.
- Oil and energy developments: sharper moves in oil prices or energy supply dynamics could alter growth and inflation paths for the euro area.
- Geopolitical developments: escalation or de-escalation in Ukraine-related tensions or broader EU political risks could affect risk sentiment and EUR flow.
- Digital euro milestones: progress toward issuance or regulatory steps could be a longer-term support or drag, depending on implementation.
