BNP Paribas strategists expect the US economy to grow above potential in 2026, with GDP at 2.9% and inflation at 3.0%, keeping the Federal Reserve on hold after three cuts in 2025. They project the Fed Funds target range at 3.5%-3.75% through 2026. Against this backdrop, strategists expect the Dollar to continue depreciating versus the Euro.
Fed on hold as Dollar softens
“The US economy is expected to grow above its potential pace in 2026, with an average annual growth rate of +2.9%, a yearly improvement (+2.1% in 2025).”
“The inflation overshooting of the target is set to continue (+3.0% in 2026) until at least the end of 2027 due to tariffs – although the impact of these appears to be less significant than expected – and the rise in oil prices.”
“The rebalancing of risks surrounding the Fed’s dual mandate and its emphasis on the ‘employment’ component has triggered a new cycle of rate cuts.”
“The FOMC implemented three rate cuts (-75 bps cumulative) in total in 2025, and we expect the Fed Funds target range to be held steady at 3,5% – 3,75% throughout 2026.”
“We expect the dollar to continue depreciating against the euro.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/usd-gradual-decline-as-growth-slows-bnp-paribas-202603231334
