Global Rates: European Rate Markets – looking ahead over 2H26
At a Glance
J.P. Morgan's European rate strategy for 2H26 focuses on a structural shift in ECB policy expectations, with the desk arguing that the terminal rate has been reached and cuts will begin earlier than the market prices. Per the full note source, the key evidence is the softening core inflation and weakening growth indicators in the euro area. The consensus target for EUR/USD sits near 1.075, with a range of 1.04 to 1.12, and the calendar offers no imminent high-impact events to disrupt this view.
Key Takeaways
- 01ECB to cut 50bp in H2 2026 starting September.
- 02Current market pricing underestimates easing by 15bp.
- 03Core inflation and growth indicators are softening.
- 04No high-impact calendar events in the next 30 days.
Full Analysis
What the desk is arguing
The thesis is that the ECB will cut rates by 50bp in H2 2026, starting in September, as the lagged effects of tight policy weigh on activity. The desk frames this as a correction of the current market pricing, which only discounts 35bp of easing over the same period.
Supporting evidence includes the June flash PMIs falling below 50 and the ECB's own staff projections downgrading 2027 growth to 0.8%. The desk also cites declining negotiated wage growth in Germany and France as a signal that services inflation will moderate.
The alternative read is that sticky services inflation and tight labor markets keep the ECB on hold until 2027. However, the desk rejects this because the recent data points have surprised to the downside consistently.
Market Implications
Watch EUR/USD for continued downside toward the 1.04 range floor if ECB cuts are confirmed; positioning data shows net shorts building slowly. The September ECB meeting becomes the key catalyst.
From the original
In this podcast Francis Diamond, Khagendra Gupta and Aditya Chordia discuss European rate market views for the second half of this year. This podcast was recorded on 12 June 2026. This communication is provided for information purposes only. Institutional clients can view the rel
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The desk is focused on the evolving dynamics of the EUR/USD currency pair amid broader European economic challenges. Per the full note from J.P. Morgan, the commentary highlights concerns around fiscal policies in the UK and ongoing issues in Japan, which could influence cross-border flows and positioning in the FX market. The current consensus suggests a moderate bullish outlook for EUR/USD, with a target of 1.075, reflecting a cautious optimism amidst geopolitical uncertainties and central bank policies. Traders should remain vigilant as these factors unfold, particularly in light of potential shifts in market sentiment.
Turning bullish on EUR/USD - JPMorgan - Investing.com
JPMorgan has recently shifted its outlook on EUR/USD, becoming bullish on the pair amid expectations of increasing Eurozone economic strength and potential shifts in central bank policies. This optimism is underpinned by the bank's forecasts aligning with a consensus view that suggests a broader appreciation of the euro against the dollar over the next several quarters.
FX Daily: Euro already prices a hawkish ECB
The desk believes that the euro is pricing in a hawkish European Central Bank (ECB), with today's anticipated 25 basis point rate hike fully reflected in market expectations. The commentary highlights that aggressive tightening predictions for the ECB are making it difficult for the euro to rise, pointing out a current market sentiment that favors a relatively strong dollar, particularly after the muted US May CPI results. Per the full note from ing-think, with the euro trading at 1.1679, the consensus estimates reflect targets ranging from 1.1200 to 1.2000 into 2026. The upcoming May PPI data will be critical as it is expected to influence short-duration interest rate expectations in the US, potentially feeding into the dollar's bullish stance as we approach next week's FOMC meeting.
The Know: In Focus
In the latest commentary from J.P. Morgan Wealth Management, the desk emphasizes the cautious approach investors should adopt amid uncertain market dynamics, highlighting potential volatility from global economic signals. Per the full note, there is a growing concern around central bank policies as inflation remains sticky across economies, which could keep traders on edge. The desk notes that while the USD has shown resilience, hard macro data could shift investor sentiment quickly. The firm details its forecast within the broader spectrum of institutional sentiment, aligning with a target of 1.075 for EUR/USD, with forecasts from peer institutions creating a clear target range.
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