Outlook
The euro held its ground after Christine Lagarde’s remarks, with markets discounting a near-term shift in policy as inflation looks set to stabilise around the 2% target in the medium term. Markets largely expect the ECB to keep the deposit rate at 2.00% given mixed growth signals and cooling price pressures. In the near term, today’s German CPI print could cap the euro’s upside if inflation cools modestly, though the overall tone remains data-dependent and cautious.
Recent developments support a cautious stance: the ECB signalled patience on policy, Bulgaria joined the euro area early this year, and the digital euro project moves forward with potential issuance by 2029 pending EU legislation. The euro remains sensitive to energy prices, geopolitical risk, and broader global risk sentiment. In price terms, EURUSD sits near 1.18, with a 7-day high around 1.1806 in a 3-month range of roughly 1.1586–1.2031. EURGBP trades near 0.8749, within a 3-month range of 0.8628–0.8799, and EURJPY around 184.0, within 180.5–186.2. Oil is seeing energy-microscope effects on the euro area; at about 70.86 per barrel, it sits near a 7-day low but well above the 3-month average, highlighting ongoing energy costs risk for Europe.
Key drivers
- ECB policy outlook and inflation trajectory, including Lagarde’s communications and upcoming inflation data.
- Germany CPI release and other euro-area data that could confirm or surprise on inflation trends.
- euro-area structural updates: Bulgaria’s euro adoption and progress toward a digital euro.
- Energy prices and the Ukraine-related risk environment affecting euro area growth and inflation.
Range
EUR/USD: 1.1586 to 1.2031 over the past 3 months, with a 7-day high near 1.1806.
EUR/GBP: 0.8628 to 0.8799 over the past 3 months, with a 7-day high near 0.8749.
EUR/JPY: 180.5 to 186.2 over the past 3 months, with a 7-day high near 184.0.
Oil (USD per barrel): 59.04 to 71.76 over the recent range, a 21.5% fluctuation; current around 70.86, near 7-day low but well above the 3-month average of 64.77.
What could change it
- A stronger-than-expected German or euro-area inflation print that pushes the ECB to reconsider the pace of any policy tightening or skin-deep hikes.
- A clearer path on the digital euro or a faster-than-expected expansion of the euro area (e.g., Bulgaria’s integration) boosting confidence in the currency.
- Significant shifts in energy prices or fresh geopolitical developments that alter euro-area growth and inflation expectations.
- A notable shift in USD momentum or broad risk-off/risk-on sentiment that reshapes cross-rate dynamics for EUR pairs.
