Euro: Political and growth risks point lower against US Dollar – HSBC

FXStreet Insights Team FXStreet

HSBC notes that dovish comments from European Central Bank (ECB) President Christine Lagarde and lower Oil prices now lead its economists to expect the ECB to hold rates in 2026. The bank sees Euro (EUR) downside over coming months, as EUR/USD is expected to drift lower amid lingering regional growth concerns and rising French political risks ahead of the April 2027 presidential election.

ECB hold and French risks weigh on Euro

"In Europe, dovish remarks from European Central Bank (ECB) President Christine Lagarde on 22 June likely put downward pressure on the EUR. Since the Strait of Hormuz has reopened and oil prices have fallen, our economists now expect the ECB to hold rates in 2026, rather than proceed with the two additional hikes previously anticipated."

"We therefore expect EUR/USD to drift lower over the coming months. While lower energy prices can be supportive for the EUR, they are unlikely to be enough to resolve wider concerns about economic growth in the region. Political risk could also re-emerge, with France’s April 2027 presidential election approaching and centrist parties currently trailing in the polls."

"Any perceived weakening in fiscal discipline or reform momentum could raise risk premia, slow capital inflows, and add further pressure on the EUR."

"The EUR and GBP are likely to face rising headwinds from political uncertainty and growth risks."

"ECB President Lagarde’s dovish tone and lower oil prices support an ECB rates hold."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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