Goldman Sachs economists anticipate the European Central Bank will raise interest rates by 25 basis points at its meeting on Thursday. The bank's internal forecasts signal that the ECB is likely to revise up core inflation projections for both 2027 and 2028, reflecting what Goldman characterizes as a more persistent inflationary shock.
Goldman's economists link those projected upward revisions to an expectation that energy market disruptions will leave a longer-lasting imprint on price dynamics. That analysis underpins the bank's view on the trajectory of medium-term inflation in the euro area.
A Bloomberg survey cited in the background to these forecasts shows economists remain split on whether core inflation will require revision beyond the current year, illustrating continuing uncertainty among forecasters about persistence of inflationary pressures.
Market pricing already reflects the expected 25 basis point increase, according to Goldman. The bank's analysts say that if the ECB's decision simply matches these expectations, the immediate influence on the currency should be limited.
Still, Goldman notes the currency pair EUR/USD has grown more sensitive to front-end rate differentials than it was earlier this year, suggesting that subsequent communications and decisions by the ECB could move the exchange rate. In particular, the timing and magnitude of any additional ECB rate hikes later in 2026 remain factors that could alter EUR/USD.
Goldman highlights scenarios that could push the euro higher - notably if the ECB concludes that inflation pressures are more entrenched and signals a low threshold for consecutive rate hikes. At the same time, the bank cautions that current market pricing leaves room for investor disappointment if the ECB's stance proves less hawkish than assumed.
Downside in EUR/USD has been constrained recently, the bank says, with the pair tracking shifts in risk sentiment and modest rises in natural gas prices. Those dynamics have helped keep the broader dollar relatively range-bound.
Goldman continues to favor the euro as a funding currency, while also flagging the risk that sustained energy disruption could increasingly weigh on economic activity in the region.