Outlook
The euro remains stable as markets digest a light data calendar and quiet risk sentiment. The immediate cue is Germany’s consumer confidence figure; a firmer reading into February could push the euro toward the upper end of its range. In the background, cooling euro-zone inflation and ECB policy signals keep a constructive bias for the single currency, though gains may be capped by global risk dynamics and policy uncertainty around the future path of rates.
Key drivers
- German consumer confidence due for February; a better-than-expected reading could lift EUR.
- Inflation trajectory: euro-area inflation expected to ease toward 1.7% in 2026, supporting a gradual policy normalization narrative and euro strength alongside it.
- ECB policy outlook: near-term hold with potential late-2026 tightening if inflation remains persistent; this path supports a cautious euro appreciation.
- Digital euro initiative: progress toward a possible 2029 issuance, subject to EU legislation in 2026, reinforcing euro-area credibility.
- Bulgaria’s euro adoption in 2026 reinforces euro-area integration and long-term demand for the currency.
- Market cross-drivers: EURUSD around 1.1972 (2.6% above the 3-month average of 1.1669) within a 3-month range of 1.1480–1.2031; EURGBP at 0.8665 (0.9% below the 3-month average of 0.8742) within 0.8657–0.8833; EURJPY at 183.3 (0.7% above the 3-month average of 182) within 176.4–186.1. Oil at near 90-day highs around 66.67, up 5.8% vs the 3-month average of 63.04, with a 59.04–66.67 range, feeding inflation expectations and policy risk.
Range
EURUSD is at 1.1972, 2.6% above its 3-month average of 1.1669, and has traded in a 3-month range of 1.1480–1.2031. Crosses show tighter deviation: EURGBP at 0.8665 (0.9% below its 3-month average of 0.8742) within 0.8657–0.8833; EURJPY at 183.3 (0.7% above its 3-month average of 182) within 176.4–186.1. Oil trades near 66.67, within a 59.04–66.67 range.
What could change it
- A stronger-than-expected German consumer confidence reading for February could push EUR higher.
- Clear ECB signals of earlier or faster tightening, or comments skewing toward policy normalization, could lift the euro; or continued hawkish reluctance could limit gains.
- Progress on the digital euro and upcoming EU legislation in 2026 could bolster euro-area credibility and demand.
- Oil price moves: further oil rallies could sustain inflation expectations and support a higher EUR path; a notable drop could ease inflation pressure and weigh on euro sentiment.
- USD dynamics and global risk sentiment: renewed USD strength would likely cap EUR gains, while renewed USD softness could help EUR, depending on risk appetite and other data drivers.
