MUFG Says Euro Weakens Vs. U.S. Dollar Ahead of ECB's Thursday Policy Meeting

06:47 AM EST, 02/05/2026 (MT Newswires) -- The euro (EUR) has continued to correct lower against the US dollar (USD) ahead of Thursday's European Central Bank policy meeting, said MUFG.

After briefly hitting a high of 1.2081 last week, EUR/USD has dipped back below the 1.1800 level overnight Wednesday, wrote the bank in a note to clients.

MUFG isn't expecting Thursday's ECB policy meeting to provide a fresh catalyst for euro performance in the near-term. The ECB is likely to reiterate that it's comfortable with its current policy stance but is unlikely to completely rule out the prospect of further easing.

The bank estimates the ECB to leave its policy rate on hold through this year, but judges that there is a higher risk of another cut than a hike given inflation is likely to undershoot its target. Headline inflation slowed to 1.7% year over year in January.

A couple of ECB policymakers expressed some concern over euro strength last week when EUR/USD rose briefly above 1.2000, but MUFG doubts that they will push back strongly at Thursday's policy meeting. The euro is only modestly stronger than at the last policy meeting in December although it has risen by around 14% against the US dollar over the past year adding to disinflation pressures in the eurozone.

Governing Council member Francois Villeroy de Galhau stated last week that "we are closely monitoring this appreciation of the euro and its possible consequences in terms of lower inflation. This is one of the factors that will guide our monetary policy and our decisions on interest rates over the coming months."

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