FRANKFURT – The euro remained broadly stable at the start of the week as investors looked ahead to the upcoming European Central Bank policy meeting, where interest rates are widely expected to remain unchanged.
Market analysts expect the ECB to keep its benchmark deposit rate at 2% during Thursday’s meeting, while signaling caution as policymakers weigh rising inflation risks against weakening economic growth. Recent polling among economists suggests that while no immediate move is expected, a rate hike in June remains a realistic possibility if inflationary pressures continue to build.
The central bank is facing a difficult balancing act.
On one side, inflation in the eurozone has moved above the ECB’s 2% target, largely driven by higher energy prices linked to geopolitical tensions in the Middle East. The ECB recently revised its inflation outlook for 2026 upward to 2.6%, reflecting the impact of higher oil and energy costs.
On the other side, economic growth across the eurozone remains fragile.
ECB projections now place economic growth at just 0.9% for 2026, lower than previous forecasts, as households and businesses face growing pressure from rising energy bills and weaker confidence.
Recent economic indicators have reinforced those concerns.
Consumer sentiment in major eurozone economies such as Germany and France has weakened, with households showing less willingness to spend and a stronger preference for saving as uncertainty rises.
Analysts say this trend could limit consumer spending, one of the key drivers of economic activity in the eurozone.
ECB President Christine Lagarde has emphasized in recent days that the central bank needs more data before making any firm policy decisions, particularly because there is still limited evidence of broader wage-driven inflation, often referred to as “second-round effects.”
For currency markets, the ECB’s guidance will be closely watched.
A more hawkish tone—suggesting future rate hikes—could support the euro by making euro-denominated assets more attractive. At the same time, growing concerns about economic weakness could limit gains if investors become more focused on recession risks.
The euro’s next move is therefore likely to depend not only on Thursday’s ECB statement, but also on incoming inflation data, wage developments and geopolitical events that continue to shape Europe’s economic outlook.