Key Moments
- Bank of America expects a bullish euro outlook in 2026, supported by lower US rates and potential China stimulus.
- The bank sees growth converging between the US and Euro Area in the second half of the year, while Euro Area inflation remains lower than other G4 peers.
- However, BofA stays cautious in the near term, citing a likely final ECB rate cut in March and fiscal optimism already priced in.
Strategic Euro View for 2026
Investing.com – Bank of America has adopted a constructive view on the euro for 2026. The bank argues that shifting macro and policy dynamics could support the single currency over time.
Specifically, BofA highlights expectations for lower US interest rates, rising concerns around Federal Reserve independence, and the likelihood of further stimulus from China. Together, these factors could create a more supportive environment for the euro.
Growth, Inflation, and Fiscal Divergences
Meanwhile, BofA expects economic growth in the United States and the Euro Area to converge in the second half of the year. At the same time, Euro Area inflation is forecast to remain lower than in other G4 economies.
In addition, the bank points to Europe’s fiscal outlook. Excluding France, European fiscal conditions appear more stable when compared with other major economies.
| Factor | BofA View |
|---|---|
| Growth dynamics | US and Euro Area growth expected to converge in H2 |
| Inflation profile | Euro Area inflation seen below other G4 economies |
| Fiscal prospects | Europe (excluding France) viewed as relatively stronger |
Trade Deals and FX Hedging as Supportive Drivers
Beyond macro factors, BofA sees trade developments as another potential tailwind. Progress on a Mercosur agreement, along with talks with India, could improve sentiment toward the euro.
Furthermore, the bank expects an increase in foreign exchange hedging activity. This trend could provide additional support for the currency over the medium term.
Near-Term Caution Despite Positive Outlook
Despite the positive 2026 outlook, BofA remains cautious in the near term. The bank expects the European Central Bank to deliver a final rate cut in March, which may pressure the euro.
At the same time, German fiscal developments now appear largely priced into markets. As a result, the scope for near-term upside surprises has narrowed.
Assessing Greenland-Related Risks and Dollar Correlations
The report also addresses concerns tied to Greenland-related developments. Some market participants see these risks as negative for the euro.
However, BofA argues the impact may be more nuanced. If such developments lead to higher defense spending or disrupt traditional dollar correlations, the euro’s response may differ from expectations.
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