Euro 2026: The battle for appreciation amid diverging central bank policies, how to bet on this trend?

Since 2025, the euro’s trend has fallen into a dilemma. On one side, expectations of Fed rate cuts are heating up; on the other side, the European Central Bank (ECB) is gradually withdrawing monetary easing after inflation recedes. Coupled with the global de-dollarization wave, the euro faces an unprecedented environment of policy divergence. Looking ahead to 2026, the direction of the euro against the RMB and the USD has become the most关注 topic in the market.

Policy Divergence: ECB “Holding Steady,” Fed “Gradually Phasing Out”

The current market consensus has already formed: the ECB’s rate-cut cycle is basically over.

Citibank’s latest judgment is that, against the backdrop of Europe’s sustained economic resilience and inflation steadily returning to target, the ECB will maintain a 2% interest rate level until the end of 2027. This means that from 2026 onward, European monetary policy will remain in a “frozen” state for a long period.

In contrast, the Fed’s policy tone is gradually adjusting. Goldman Sachs, Morgan Stanley, and Bank of America all forecast that the Fed will phase in rate cuts in 2026, with a total reduction of about 50 basis points. However, there are more cautious voices; J.P. Morgan and Deutsche Bank believe the Fed may only cut once in 2026, totaling 25 basis points.

This policy misalignment is the core driver behind the formation of exchange rates such as EUR/USD and EUR/CNY.

Economic Fundamentals: Europe’s “One Strong, One Weak,” US Faces Hidden Worries

The European economic landscape in 2026 is relatively complex. Germany, as the engine of the eurozone economy, is expected to launch large-scale fiscal stimulus plans, which could provide strong support for European growth. However, political risks in France remain unresolved and could become a drag on European growth.

The US economic outlook presents a stark contrast. Both Bank of America and Goldman Sachs are optimistic about the US growth momentum in 2026, believing the economy will remain strong. But Moody’s warning is worth noting: the US labor market has already stagnated, and if the economic boost from artificial intelligence weakens, the US economy could face greater pressure.

Market Forecast Divergence: Half Bullish, Half Bearish

Regarding the outlook for EUR/USD in 2026, Wall Street has not reached a consensus but has instead formed a stark opposition.

Bullish Camp includes JPMorgan, Bank of America, and Deutsche Bank. Their logic is that European economic growth combined with German fiscal expansion will provide upward momentum for the euro. JPMorgan expects EUR/USD to rise to 1.20 in Q2 2026, and if US economic data remains weak, it could even break through 1.25. Deutsche Bank is also optimistic, expecting EUR/USD to break 1.20 in mid-2026 and reach 1.25 by year-end. If this upward trend continues, it will also bring corresponding gains against the RMB.

Bearish Camp consists of Standard Chartered, Barclays, and Citibank. Standard Chartered points out that if Germany’s fiscal stimulus does not meet expectations, the ECB may be forced to cut rates to cope with external risks, and EUR/USD could fall to 1.13 by mid-2026, further dropping to 1.12 by year-end. Barclays emphasizes the risk of worsening trade conditions in the eurozone, expecting EUR/USD to fall to 1.13 by year-end.

Moderate Scenario comes from Morgan Stanley. The institution believes the euro will first rise then fall in 2026: supported by Fed rate cut expectations in the first half, EUR/USD could rise to 1.23, with an optimistic scenario reaching 1.30; but in the second half, as European fundamentals weaken again and US economic resilience reemerges, EUR/USD will adjust down to 1.16.

Risk Factors: Uncertainty Remains High

Behind these forecast disputes lies the uncertainty of the global economy in 2026. Whether Germany’s fiscal stimulus can effectively boost the economy, whether European political risks will escalate, and whether the US labor market is truly in trouble—these variables will have a profound impact on the trends of EUR/CNY and EUR/USD.

For market participants, the euro’s outlook in 2026 is full of opportunities and risks. The key is to closely monitor central bank policy movements, economic data changes, and geopolitical developments to seize the initiative in this exchange rate game.