USD: Gradual depreciation outlook – BNP Paribas

BNP Paribas analysts expect the Dollar to weaken, with the US economy still growing above potential in 2026 and inflation overshooting target due to tariffs. Analysts project the Fed Funds target range to remain at 3.5%-3.75% through 2026. They foresee Dollar depreciation against the Euro, while the Yen and Pound are seen slightly weaker versus the Dollar by late 2026.

Dollar seen softening versus Euro

"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 (+2.3% in 2025)."

"The inflation overshooting of the target is set to continue (+2.7% in 2026) due to tariffs –although the impact of these appears to be less significant than expected –until at least the end of 2027."

"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 à 3,5% - 3,75% throughout 2026."

"We expect the dollar to continue depreciating against the euro."

"Conversely, we anticipate a slight depreciation of the yen and the GBP against the dollar (USD/JPY 160 and GBP/USD 1.3 in Q4 2026)."

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