While the euro is losing demand among major players turning to safe-haven assets, many economists expect the ECB to deliver a final rate increase in December after pausing next week. That view, however, conflicts with market pricing for a much longer sequence of hikes. In a recent survey, a large majority of respondents said the deposit rate will rise 25 bp to 2.75% at the last meeting of 2026 and remain there until May 2028 before easing. Traders, by contrast, are pricing in three more hikes over the coming year.

The gap reflects a long-running debate over how aggressively the central bank must act to bring consumer inflation back to 2% from nearly twice that level. In September, eurozone inflation hit 3.8%. The ECB has already raised rates twice because of the war with Iran, in June and September, and activity was more resilient than expected. Markets are watching persistent oil gains while analysts stress the lack of second-round inflation effects.

There are indeed no clear signs yet that energy-driven inflation is feeding through into broader wages and prices, so the ECB does not need to accelerate hikes now; nevertheless, it could continue a series of increases next year once fuller 2026 wage data become available. Note the September staff projections: GDP growth was seen at 0.9% this year and 1.4% in 2027, with inflation at 3.0% and 2.5% (and in the adverse scenario 3.1% and 3.2%). With oil above $110, more than two-thirds of economists judge the euro area economy to be performing worse than the September baseline.

A separate issue is sovereign debt. French yields hit 5% this week for the first time since 2002, and some investors already see a risk of a renewed eurozone debt crisis. Debate is growing over how bad things must get before the ECB activates the unused Transmission Protection Instrument (TPI). Economists generally view the trigger threshold as very high. Some propose less radical measures—verbal intervention, dovish guidance, or pausing quantitative tightening.

I expect markets will ultimately converge toward economists' expectations and scale back bets on further tightening, which would remove rate support for the euro. If oil stays above $110, the ECB will need to sound firmer, but even then I expect only one hike in December and continued pressure on the euro.

Technical picture for EUR/USD

Buyers now need to reclaim 1.1230. Only that would allow targeting a test of 1.1260. From there one can reach 1.1300, but doing so without support from large players will be difficult. On the downside I expect serious buying only around 1.1200. If nobody shows up there, it would be sensible to wait for a new low near 1.1180 or to open longs from 1.1155.