The euro is getting a quiet tailwind from Frankfurt. Fresh comments from European Central Bank (ECB) officials and the bank’s latest economic bulletin suggest policymakers are now more worried about inflation staying too high than falling back below target, just as other major central banks head deeper into rate cut territory.

ECB leans away from doves

In a speech this week, ECB Executive Board member Isabel Schnabel argued that the balance of risks around euro area inflation is now tilted a little to the upside. She pointed to a recovering economy, a closing output gap and expected fiscal stimulus, as well as still elevated food prices and wage growth that is easing more slowly than earlier forecasts implied. Together, these forces do not look like the backdrop for a long undershoot of the bank’s 2 percent goal.

Her remarks landed just as the ECB published its latest economic bulletin. The report shows that euro area GDP grew 0.2 percent in the third quarter, up from 0.1 percent in the second quarter, with services and tourism offsetting weak manufacturing. Headline inflation ticked up to 2.2 percent in September, broadly in line with earlier projections and still hovering close to the target.

Euro and dollar narrative diverge

The tone stands in contrast to markets expectations for the U.S. Federal Reserve and the Bank of England, where investors still price additional rate cuts in 2026 as growth cools and labour markets soften. In foreign exchange, that divergence has already helped the euro claw back some ground. In recent sessions the single currency has managed a modest weekly gain against the dollar even as shutdown uncertainty in Washington keeps risk sentiment fragile.

Trading angles to watch

For currency traders, the message is less about explosive moves and more about a slow grind in rate differential stories:

• If the ECB stays on hold while the Fed and BoE ease further, carry in euro funded shorts becomes less attractive.
• EUR/USD may remain sensitive to U.S. data surprises, but the bearish case now depends increasingly on a genuine euro area slowdown rather than old ghosts of deflation.
• Crosses such as EUR/JPY and EUR pairs against emerging market currencies could stay choppy as the yen resumes its role as the preferred defensive hedge and emerging markets trade mainly on global risk appetite.

The next test for this slightly euro friendly narrative will come from incoming wage and inflation numbers on both sides of the Atlantic. For now, the ECB is signalling that it is in no hurry to restart cuts, and that subtle shift keeps the single currency a little better supported than the headlines might suggest.