The euro has weakened at the start of 2026 but it could be another strong year for the EU currency, as the US and UK continue their rate cutting journeys
Last year:
Last year was the year of the euro, with Europe’s main currency surging over 13% against the dollar during the last 12 months. That makes 2025 the euro’s strongest year against the greenback since 2017. Despite an early dip, investors believe that the euro could make further gains this year, as expected US interest rate cuts reduce the dollar’s appeal.
The pound also enjoyed a strong showing against the dollar in 2025, gaining 7.5% over the year. But sterling had a tougher time against the buoyant euro, ending the year over 5% down, its weakest performance for five years.
This year:
2026 promises to be an interesting one on money markets, with significant exchange rate fluctuations possible. Of particular interest will be the leadership of the US Federal Reserve (Fed). President Trump will nominate Fed chairman Jerome Powell’s successor in May, raising expectations of faster, deeper interest rate cuts.
This could see gains for both the euro and pound against the dollar. By contrast, there is little expectation of imminent rate cuts by the European Central Bank, and the Bank of England appears split on the timing and extent of further easing.
The week ahead:
Next week will see markets return to normal after the extended Christmas break. The US attack on Venezuela will be one focus, because of its potential to impact oil prices. That, in turn, could affect currency values.
Elsewhere, investors will be looking at data on the cooling labour market in the US and the balance of trade (both Thursday). The ISM Manufacturing PMI, a snapshot of economic confidence based on surveys of business leaders, will be published on Monday. In Europe, the main metrics this week will be inflation rate data from the eurozone (Wednesday) and some of its economies, and economic sentiment (Thursday). UK mortgage data will be published on Monday.
