Euro: Firmer against US Dollar despite slower growth – BNP Paribas

BNP Paribas strategists project Eurozone Gross Domestic Product (GDP) growth to slow to 0.8% in 2026 from 1.5% in 2025 due to spillovers from the Middle East conflict and weaker consumption. Inflation is seen rebounding to 2.7% in 2026, prompting one more 25 bp European Central Bank (ECB) hike, lifting the deposit rate to 2.5%. Despite softer growth, they expect EUR/USD to rise gradually through 2027.

Eurozone slowdown with modest ECB tightening

"Eurozone growth would slow in 2026 due to spillovers from the Middle East conflict."

"GDP growth, which reached 1.5% in 2025, would slow down to 0.8% in 2026, before picking up at 1.6% in 2027."

"Inflation would rebound to 2.7% in 2026 (compared to 2.1% in 2025) on the back of the energy shock and plateaued at 2.6% in 2027."

"As inflation rebounds, we continue to expect one further 25-basis-point hikes in the ECB’s policy rate in Q3 2026– pushing the deposit facility rate to 2.5%."

"We forecast EUR/USD to reach 1.16 by Q4 2026 and 1.20 by Q4 2027."

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