Euro Remains Supported by Policy Outlook

The euro hovered around $1.185, remaining close to the four-year peak above $1.20 reached in late January, supported by signals that the ECB is largely comfortable with the currency’s recent strength. At the February policy meeting, ECB President Christine Lagarde said the euro area’s inflation outlook is in a “good place,” while cautioning against overreacting to short-term or volatile data. The single currency also found support from reports that Bank of France Governor François Villeroy de Galhau, viewed as a dovish policymaker, will step down in June, well before his term was set to expire in October 2027. On the data front, Eurozone industrial production fell 1.4% in December, broadly in line with expectations. In the US, inflation slowed more than anticipated to 2.4% in January, reinforcing the view that the Federal Reserve may have scope to ease policy. Investors now await the release of the Fed’s meeting minutes on Wednesday for further guidance on the monetary policy outlook.

The euro traded near the $1.19 level, on track for a modest 0.4% weekly gain against the US dollar and remaining close to the four-year high above $1.20 reached in late January. The single currency has been supported by indications that the ECB is largely untroubled by its recent appreciation, alongside mixed economic signals from the US. ECB President Christine Lagarde said last week that the euro area’s inflation outlook is in a “good place,” while warning against overreacting to short-term or volatile data releases. The currency also drew support from reports that Bank of France Governor François Villeroy de Galhau, considered a dovish policymaker, will step down in June, well ahead of the scheduled end of his term in October 2027. In the US, inflation slowed more than expected to 2.4% in January, while the economy added 130,000 jobs, surpassing forecasts. The combination of softer price pressures and resilient employment suggests the Fed may have room to ease interest rates.

The euro traded just under the $1.19 level as global investors looked ahead to Friday’s US CPI release for further direction, although any direct spillover into the euro area is expected to be limited. The single currency’s gains were tempered by stronger-than-expected US jobs data released on Wednesday, which reduced expectations of an imminent Federal Reserve rate cut and supported the dollar. Earlier, the euro drew support from signals that the European Central Bank remains largely unfazed by the currency’s recent appreciation. Additional backing came from reports that Bank of France Governor François Villeroy de Galhau, widely regarded as dovish, will step down in June, well before his term was set to expire in October 2027. ECB President Christine Lagarde said last week that the euro area’s inflation outlook is in a “good place,” while cautioning that policymakers should not react to volatile data in isolation.