HSBC notes that dovish comments from European Central Bank (ECB) President Christine Lagarde and low oil prices are now leading its economists to expect the ECB to keep rates on hold into 2026. The bank sees a decline in the euro (EUR) in the coming months, as EUR/USD is expected to decline amid regional growth concerns and rising French political risks ahead of the April 2027 presidential election.
ECB grip and French risks weighing on euro
“In Europe, the euro is likely to be pressured by dovish comments from European Central Bank (ECB) President Christine Lagarde on June 22. As the Strait of Hormuz has reopened and oil prices have fallen, our economists now expect the ECB to keep rates on hold into 2026 rather than proceed with two additional hikes as previously anticipated.”
“We therefore expect EUR/USD to decline in the coming months. While lower energy prices may be supportive for the EUR, they are unlikely to be enough to resolve broader concerns about economic growth in the region. Political risks could also re-emerge as France approaches its April 2027 presidential election and centrist parties are currently lagging in the polls.”
“Any perceived weakness in fiscal discipline or the pace of reform could increase the risk premium, slowing capital flows and putting further pressure on the EUR.”
“EUR and GBP may face increasing headwinds from political uncertainty and growth risks.”
“ECB President Lagarde’s soft tone and low oil prices support keeping ECB rates on hold.”
(This article was created with the help of an artificial intelligence tool and reviewed by an editor.)
