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 , 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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