Headline: Euro Seen Topping Out at 1.23 in Early 2026 Before Sliding to 1.16
Key Takeaways
The euro’s next big move may be a two-step story. Currency strategists expect EUR/USD to climb in early 2026 on a softer U.S. dollar, only to give back those gains as European monetary and fiscal headwinds reassert themselves later in the year.
In a fresh FX outlook, Morgan Stanley projects the euro reaching around 1.23 against the dollar in the first half of 2026, supported by dollar weakness and improved risk sentiment. However, the bank warns that momentum could fade as the European Central Bank pushes ahead with additional easing. Its base case envisions the ECB cutting the deposit rate from 2.0% to 1.5%, widening policy divergence and weighing on the single currency.
Beyond rates, the bank highlights persistent structural pressures in the euro area. The delayed impact of tariff frictions may continue to cloud trade, but the bigger drag is expected from underwhelming fiscal support—particularly if Germany’s planned easing falls short. With softer European fundamentals and limited budgetary impulse, the euro could retrace toward 1.16 by year-end 2026, marking a shift from early strength to renewed weakness.
Key Points – EUR/USD forecast: peak near 1.23 in H1 2026, then retreat to about 1.16 by year-end – Early upside driven by a weaker U.S. dollar and improved risk appetite – Later decline tied to ECB easing; deposit rate seen falling from 2.0% to 1.5% – Eurozone fiscal support viewed as insufficient, with Germany likely undershooting plans – Lingering tariff effects add to a softer European growth backdrop – Policy divergence and weaker fundamentals expected to cap the euro after mid-year
Context
Current positioning around Market Analysis remains sensitive to primary-source updates, policy interpretation, and execution risk across major venues.
What To Watch
Key confirmation signals include sustained spot demand, funding stability, and whether price can hold reclaimed levels after headline-driven volatility.
If momentum weakens, traders will likely prioritize downside liquidity zones and risk-control positioning before adding new directional exposure.
Related: More from Market Analysis | HYPE Surges 5%, JUP Weekly Up on Supply Freeze in Crypto Market | KNC Price Surges Over 23%: Kyber Network Insights in Crypto Market
