EUR: Supported by relative growth and fiscal shifts – BNP Paribas

BNP Paribas Economic Research Team projects Euro appreciation versus the Dollar, supported by structural changes in US fiscal policy and an expected strengthening of growth in Europe. The bank also forecasts a gradual and moderate rise in EUR/USD to 1.20 by Q4 2026, reflecting relatively stronger European fundamentals compared with the United States.

Euro expected to gain versus peers

"After holding up well in 2025 (1.5%), growth is expected to strengthen in 2026 (+1.6%). It is expected to grow at a stable quarterly rate of 0.5% over the year."

"Favourable carryover effect would keep the average annual unchanged in 2027 (1.6%), despite a lower quarterly profile (+0.3% q/q). The roll-out of fiscal measures in Germany and the planned increase in military spending and AI-related investment in Europe, against a backdrop of labour market resilience, underpin this scenario."

"The EU-US trade agreement remains precarious and tensions with China are mounting, creating uncertainty around our forecasts. Inflation is expected to remain below the 2% target in 2026."

"Stronger economic activity will lead to a progressive acceleration in inflation in 2027, albeit a moderate one. This would lead the ECB to increase the policy rate in H2 2027, bringing the deposit facility rate to 2.5%."

"We expect the dollar to continue depreciating against the euro. Structural changes in fiscal policy and the expected strengthening of growth in Europe, coupled with the slowdown in the United States, underpin our forecast of a gradual and moderate rise in the EUR/USD exchange rate by the end of 2026 (1.20 in Q4 2026)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)