EUR/USD Forecast: Why the Euro Is Rising Against the Dollar
EUR/USD recorded its second consecutive recovery session, currently trading around the 1.1900–1.1920 range, as the US dollar weakened again and US Treasury yields moderated. This rebound reflects an adjustment in market expectations regarding monetary policy, as investors temporarily reduced USD holdings ahead of a series of key economic data releases.
From the Eurozone side, fundamental factors have generally yet to show a clear improvement. Eurozone inflation declined to 1.7% in January 2026, below the European Central Bank’s (ECB) 2% target, while economic growth continues to face challenges, particularly in core economies such as Germany and France. This increases the likelihood that the ECB may further extend monetary easing should inflation remain weak.
The ECB continues to maintain a cautious stance, prioritizing stability over policy tightening. In recent remarks, ECB officials have also shown a degree of sensitivity to exchange-rate movements, as a sharply stronger euro could hurt exports and weaken growth prospects. This suggests that the ECB has limited incentive to support a rapid appreciation of the euro, at least in the near term.
As a result, while the euro may receive some technical or sentiment-driven support, the Eurozone’s fundamental backdrop remains insufficient to generate an independent and sustainable uptrend for EUR/USD.
In contrast, recent movements in EUR/USD have been driven primarily by USD weakness. The US Dollar Index (DXY) continued to decline toward around 96.6 during the Asian session this morning, as markets became more cautious about the policy outlook of the US Federal Reserve (Fed).
US Treasury yields, particularly the 10-year yield, have eased from recent highs, retreating toward around 4.2%, reflecting expectations that the Fed could shift toward a more accommodative stance if upcoming economic data point to slowing growth and easing inflation. In this environment, the appeal of the USD as a safe-haven asset has also diminished somewhat as overall risk sentiment improved.
Overall, the primary driver of the current EUR/USD advance is a weaker US dollar rather than a structurally stronger euro.
Markets are now entering a sensitive phase, with this week featuring a heavy slate of key economic data, especially from the United States. Indicators such as inflation (CPI/Core CPI), labor market data (Nonfarm Payrolls, unemployment rate), and selected consumption-related releases will play a crucial role in shaping expectations for Fed policy.
I believe that if these data show the US economy cooling more clearly than expected, downward pressure on the USD could intensify further, allowing EUR/USD to sustain or extend its recovery. Conversely, if US data come in stronger than anticipated, markets may quickly reprice interest-rate expectations, triggering a rebound in the USD and renewed downside pressure on EUR/USD.
In the near term, EUR/USD remains supported by a softer USD and a less defensive market mood. However, the current advance continues to rely more heavily on US economic data dynamics than on improvements in the Eurozone’s macroeconomic fundamentals. This leaves EUR/USD vulnerable to heightened volatility around data releases, with reversal risks remaining elevated should the USD regain upward momentum.
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