European Gas Prices Rise as Geopolitical Risks Intensify
European gas prices are on the rise, fueled by increasing geopolitical risks that could lead to further energy price inflation. Rabobank's warning about potential spikes highlights the fragility of the energy market, which is directly correlated with broader economic stability in the Eurozone. The elevated energy costs could hinder the European Central Bank's ability to tighten monetary policy, thereby maintaining pressure on the euro. This backdrop supports USD carry trades as traders seek refuge amidst rising fiscal costs in Europe.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The current market conditions resonate with views from JPMorgan, which also expects modest EUR depreciation in the face of energy price inflation.
How firms align
JPMorgan is aligned with the prevailing sentiment regarding the bearish outlook for the euro, predicting a target of 1.10 for March 2026. In contrast, BofA holds a more pessimistic view, setting a target of 1.04, suggesting significant downside risk for the euro under current conditions.
What the data shows
Forecast revisions indicate an overall pessimistic stance towards the euro due to rising energy prices, as firms adjust their models to account for potential inflationary pressures. Our latest insight on energy inflation underscores the potential impacts on currency valuations, particularly /research/euro-energy-inflation-impact.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Rising European gas prices signal ongoing inflationary risks for the euro.
- 02USD remains the favored currency amid increased geopolitical tensions.
- 03Traders should watch for shifts in ECB policy, especially if energy prices surge further.
Market implications
Going forward, traders should monitor the EUR/USD pair closely, particularly as it approaches key psychological levels. A failure to hold above 1.07 could trigger additional bearish sentiment, aligning with our consensus target of 1.075.
Risks to this view
If geopolitical tensions ease significantly or if a major supply increase from LNG sources occurs, this could mitigate energy price pressures and bolster the euro, invalidating the current bearish view.
Sentiment by currency
USD+EUR JPY~GBP~Composite USD score: +0.35
Firms mentioned
Sources & References
How we cover this story