The euro fell in European trading on Thursday against a basket of global currencies, extending its losses for the second consecutive day against the US dollar and approaching its lowest level in two weeks, as easing inflation pressures on European Central Bank policymakers revived expectations of at least one European interest rate cut this year.

The European Central Bank is due later today to conclude its first monetary policy meeting of 2026, with expectations pointing to another hold in interest rates for the fifth consecutive meeting. The upcoming statement is expected to provide further signals and clarification about the future path of interest rates during this year.

Price Overview

Euro exchange rate today: The euro fell against the dollar by 0.2% to $1.1783, from an opening level of $1.1807, and recorded a session high at $1.1808.

The euro ended Wednesday down by 0.1% against the dollar, resuming losses that had paused the previous day as part of a rebound from a two-week low at $1.1776.

Inflation in Europe

Official data released yesterday showed continued easing in core inflation levels in Europe, highlighting reduced inflationary pressures on European Central Bank policymakers.

The headline consumer price index rose by 1.7% year-on-year in January, the slowest pace since September 2024, in line with market expectations of a 1.7% increase, after a 1.9% rise in December.

Core CPI rose by 2.2% in January, the slowest pace since October 2021, below market expectations of 2.3%, after registering 2.3% in December.

European Interest Rates

Following the above data, money market pricing for a 25 basis point rate cut by the European Central Bank in March increased from 25% to 35%.

Traders adjusted their expectations from keeping European interest rates unchanged throughout the year to pricing in at least one 25 basis point cut.

European Central Bank

The European Central Bank will conclude later today its first regular monetary policy meeting of 2026, with expectations steady for no change in interest rates. The accompanying statement is expected to offer additional guidance on the future interest rate path over the course of the year.

Expectations are currently stable for keeping European interest rates unchanged at 2.15%, the lowest level since October 2022, for the fifth straight meeting.

The ECB interest rate decision and policy statement are due at 13:15 GMT, followed by a press conference from ECB President Christine Lagarde at 13:45 GMT.

Outlook for the Euro

We expect that if the European Central Banks remarks come in less hawkish than markets anticipate, expectations for rate cuts this year will increase, leading to further negative pressure on the euros exchange rate against a basket of global currencies.