Outlook
The euro remains broadly range-bound around 1.18 against the dollar as markets weigh easing eurozone inflation against the ECB’s policy stance. January inflation at 1.7% gives the ECB room to normalize gradually, but the policy rate stays at 2% for now. A cautiously hawkish ECB tone that signals a gradual path to normalization could push the euro toward 1.19–1.20, while a softer stance or clearer hints of future easing could pull it toward 1.17 or lower. Cross-rate positioning shows modest euro strength versus the dollar and the yen, but oil-market volatility adds near-term uncertainty.
Key drivers
- Inflation cooled to 1.7% in January, providing room for a gradual ECB normalization while policy rates remain at 2%.
- The ECB’s upcoming communications and stance on euro strength and the policy path will be decisive for near-term direction.
- The dollar and broader market moves around BoE/ECB decisions can amplify volatility and drive EUR moves.
- Oil price volatility adds to energy-inflation considerations in the euro area and shapes ECB guidance.
Range
EURUSD around 1.1818 (3-month average 1.1695). Range: 1.1516–1.2031.
EURGBP around 0.8679 (3-month average 0.873). Range: 0.8628–0.8833.
EURJPY around 185.8 (3-month average 182.7). Range: 177.6–186.1.
Brent Crude OIL/USD 67.91 (3-month average 63.42). Range: 59.04–69.09.
What could change it
- A clearer, more hawkish ECB guidance or a stronger euro-strength narrative could lift the euro toward the upper end of the range.
- Signs of a softer ECB path or anticipated rate cuts would weigh on the euro.
- Sustained US dollar strength or weaker US data could press EUR lower, while a softer dollar could support a move higher.
- Continued oil-price gains or declines will influence inflation expectations and ECB policy assumptions, potentially shifting the euro’s trajectory.
- Important Eurozone data surprises (growth, inflation) or geopolitical developments (euro adoption processes, regional energy issues) could alter sentiment quickly.
