The main source of support for the euro remains expectations surrounding the European Central Bank. Markets have largely priced in a 25-basis-point rate hike at the ECB’s June meeting, which would lift the deposit rate to 2.25%.
At the same time, some economists believe another rate increase could follow later this year if inflationary pressures remain elevated.
Recent surveys suggest that most analysts still expect the ECB to maintain a relatively restrictive policy stance throughout 2026, providing a supportive backdrop for the single currency.
Inflation and economic growth
Rising inflation continues to support the euro. Preliminary Eurostat data showed that annual inflation in the euro area accelerated to 3.2% in May from 3.0% previously, while core inflation increased to 2.5%. Higher services and energy prices have reinforced expectations that the ECB may need to keep monetary policy tighter for longer.
However, concerns about economic growth continue to limit the euro’s upside potential. Elevated energy prices, driven by geopolitical tensions and global supply uncertainties, are weighing on business activity and consumer demand across the eurozone.
What matters for EUR/USD
For EUR/USD, the key factor is not only the ECB’s policy outlook but also the divergence between expectations for the ECB and the Federal Reserve.
If the ECB signals a willingness to continue tightening policy while the Fed maintains a cautious stance, the euro could receive additional support. However, much of the anticipated June rate increase has already been priced into the market. As a result, investors will focus closely on President Christine Lagarde’s comments and the ECB’s updated inflation and growth projections.
Near-term outlook
The technical outlook remains moderately constructive as long as EUR/USD stays above the 1.1500–1.1530 support zone. If the ECB delivers a hawkish message, the pair could extend its recovery toward 1.1600–1.1650.
On the other hand, a more cautious tone from policymakers or renewed demand for the U.S. dollar could push the pair back toward 1.1530. A break below this level would expose the key 1.1500 support area, while a sustained move lower could open the door to 1.1480 and potentially 1.1460.
For now, as written in EUR/USD under pressure as dollar strengthens on Fed expectations, EUR/USD remains highly sensitive to ECB communication and incoming inflation data, suggesting that volatility may increase significantly following the rate decision and Christine Lagarde’s press conference.
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