Eurozone Inflation Gradually Recedes Will ECB Rate-Cut Window Open Again? 2026 Euro Exchange Rate Trend Forecast

TradingKey - After the Eurozone endured a three-year predicament of "high prices, high interest rates, high debt, and low growth," the European economy has finally demonstrated the resilience of a moderate recovery. Currently, the European Central Bank (ECB) faces the ultimate test of whether to "maintain the status quo" or implement "precautionary rate cuts." Euro exchange rate volatility, inflation trends, and economic outlook have become core focuses for investors and financial enthusiasts to allocate overseas assets and seize exchange rate opportunities.

Eurozone inflation has gradually receded and is close to the central bank's target range

Inflation is the core anchor for the European Central Bank's monetary policy. According to the latest data released by Eurostat, the Eurozone's Harmonized Index of Consumer Prices (HICP) rose 1.9% year-on-year in December 2025, down 0.2 percentage points from 2.1% in November, unexpectedly falling below the ECB's 2% inflation target range. This is the first time since 2022 that Eurozone inflation has remained consistently below the target level. As of January 2026, the preliminary inflation figure for the Eurozone fell further to 1.7%, continuing the downward trend.

Regarding the Eurozone inflation trend for 2026, the ECB clearly predicted in its February 2026 interest rate resolution that the average inflation rate in the Eurozone for 2026 will remain around 1.9%, slightly below the 2% target, and core inflation will gradually fall back to 2.0%, achieving a "moderate and controllable" inflation pattern.

2026 Policy Forecast: Will the window for rate cuts open again?

In February 2026, the European Central Bank held a monetary policy meeting and maintained the three major interest rates unchanged for the fifth consecutive time—the deposit facility rate, the main refinancing rate, and the marginal lending rate remained at 2%, 2.15%, and 2.40%, respectively.

This decision is in line with general market expectations and marks the period since inflation fell back to the target range in June 2025, during which the ECB has continued to pause interest rate adjustments, highlighting its core strategy of "maintaining policy stability and safeguarding economic recovery."

Most economists believe that a 2.0% deposit rate is the "endpoint" or "neutral level" for this cycle. For the remainder of 2026, since the labor market remains resilient and wage growth remains sticky, the ECB is likely to keep interest rates unchanged.

Berenberg Bank and other institutions warn that if the Euro continues to strengthen against the US dollar (pushing down import costs), causing the Eurozone to face "imported deflation," the ECB may cut rates an additional 1-2 times in mid-2026, pushing rates down to around 1.5% to stimulate demand.

2026 Could Be a Year of "Moderate Recovery" for the Eurozone

After experiencing sluggish growth in 2024-2025, the Eurozone finally showed resilience in its recovery in 2026. European Commission data show that Eurozone GDP growth in 2025 was about 1.3%, and the overall EU GDP growth was 1.4%, a slight increase from 1.1% in 2024.

In a research report at the end of 2025, Goldman Sachs pointed out that the Eurozone's economic resilience in 2025 exceeded expectations. Although additional US tariffs put some pressure on exports, strong domestic demand offset the drag from net exports. Meanwhile, Germany's shift toward large-scale fiscal expansion and increased defense spending in various countries provided additional support for economic growth.

Looking ahead to 2026, the Eurozone economy will continue to "climb over hurdles," with major institutions' growth forecasts being basically consistent, all remaining in the 1.2%-1.3% range. Among them, the European Commission predicts that in 2026, Eurozone GDP growth will be 1.2%, with the EU overall at 1.4%.

Goldman Sachs predicts Eurozone GDP growth of 1.3% in 2026, slightly higher than the European Commission's expectations; Deutsche Bank predicts that the Eurozone's economic growth rate in 2026 will remain at 1.2%, basically flat compared to 2025.