HSBC’s report looks into the European Central Bank’s (ECB) choice to keep the key deposit rate steady at 2%. It suggests that external factors and fiscal policies will likely influence the euro’s future more than the ECB’s unchanged approach by 2026. The ECB’s latest forecasts are optimistic, raising growth projections to 1.2% for 2026 and 1.4% for 2027, up from the previous figures of 1.0% and 1.3%. They expect only minimal reductions in inflation over the next two years.

Economists’ Predictions on ECB Stance

Economists believe the ECB will keep its position steady through 2026, with a possible rate increase in 2027. This consistency means global developments may have a stronger impact on the euro’s direction. If regional fiscal policies fall short or economic conditions worsen elsewhere, the euro could face challenges. The FXStreet Insights Team gathers views from market experts, combining input from both internal and external analysts. This analysis provides insights into market trends and factors that might impact currencies. The European Central Bank is taking a cautious approach by maintaining its key rate at 2%. With improved growth forecasts for 2026 and 2027, the focus will shift as the ECB’s stable rates mean the euro will be influenced more by external events.

Policy Gap with the US

We need to closely monitor the growing policy gap with the US, where the Federal Reserve is dealing with ongoing inflation challenges. The latest US Consumer Price Index (CPI) data for November 2025 showed inflation at 3.1%, which keeps pressure on the Fed to maintain a hawkish stance, contrasting with the ECB’s stability. This difference favors strategies that support the US dollar over the euro, like buying EUR/USD put options as we head into the new year. Internal politics in Europe also pose risks, particularly in terms of fiscal discipline. Ongoing discussions in Brussels about enforcing the Stability and Growth Pact in early 2026 are creating uncertainty not present earlier in 2025. Any indication of fiscal strain could negatively impact the euro, regardless of the ECB’s steady policy. With the ECB’s predictable strategy, implied volatility for the euro may be overstated in the coming weeks, especially during the typically quiet holiday trading period. Looking back at 2014-2016, prolonged ECB stability often resulted in lower volatility, benefiting those who sold options. Consequently, there are favorable opportunities for strategies that profit from low price movement, such as selling short-dated EUR strangles. Create your live VT Markets account and start trading now.

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