Eurozone: Higher inflation and ECB hikes projected – BNP Paribas

FXStreet Insights Team FXStreet

BNP Paribas economists project Eurozone Gross Domestic Product (GDP) growth slowing from 1.5% in 2025 to 1.0% in 2026 and 1.3% in 2027, with inflation rebounding to 3.0% and 3.3%. Activity is expected to withstand the energy shock thanks to investment in defence, AI and electrification. They anticipate two 25 bp ECB rate hikes in 2026, lifting the deposit rate to 2.5%.

Growth slows as ECB turns tighter

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

"GDP growth, which reached 1.5% in 2025, would slow down to 1.0% in 2026 and 1.3% in 2027, while inflation would rebound to 3.0% in 2026 and 3.3% in 2027 (compared to 2.1% in 2025)."

"Activity would nevertheless withstand the energy shock, supported by investment in defence, AI, and electrification, which should continue to boost intra-EU trade."

"As inflation rebounds, two 25-basis-point hikes in the ECB’s policy rate would take place in 2026 – with the first hike expected in June – pushing the deposit facility rate to 2.5%."

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

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD bulls seem hesitant near 0.6950

AUD/USD attracts some buyers for the second straight day, though it remains confined within Friday's broader range amid mixed cues. The US PCE data and the US NFP report released last week tempered October Fed hike bets, dragging US bond yields away from multi-year highs and keeping US Dollar bulls on the back foot. However, geopolitical uncertainty is a tailwind for the safe-haven buck, while the RBA's cautious outlook caps the Aussie.

USD/JPY remains confined in a range below 158.00

USD/JPY holds steady around 157.75 during the Asian session on Monday, trading within a one-week-old range. Against the backdrop of soft US PCE data, the US NFP report, released on Friday, tempers October Fed rate-hike bets and drags US bond yields away from multi-year highs. Furthermore, hawkish BoJ expectations amid looming intervention risks support the Japanese Yen, capping the pair. However, geopolitical uncertainty acts as a tailwind for the safe-haven buck and limits the downside.

Gold trades with positive bias around $4,150; upside seems capped

Gold attracts some dip-buyers at the start of a new week, though it remains confined in a familiar range held over the past week or so. Against the backdrop of soft US PCE data, Friday's weak US NFP report tempered bets of an October Fed rate hike. This, in turn, drags US bond yields away from multi-year highs and benefits the non-yielding bullion. The US Dollar, however, draws support from geopolitical uncertainties and could act as a headwind for the precious metal.

Week ahead: Fed minutes in the spotlight amid bond market rout

The first full week of October and the final quarter of the year get underway with little fanfare in terms of the economic agenda. But far from being short on excitement, the coming week will test market nerves, as government bond yields continue to soar on growing worries that the energy crisis will only get worse, fuelling inflation.

CFTC Report: Speculators turn more defensive as Oil exposure falls

The week in one sentence: During the week leading up to September 29, long positions in crude oil were significantly reduced, while short positions in the Canadian Dollar went up. In addition, the positioning of the Australian Dollar and the Japanese Yen declined, while Coffee buying stood out against a more general background of defensiveness.

The Euro is near a one-year low: Inflation could trigger its rebound, not its fall

EUR/USD has fallen to its lowest level since May 2025. The pair hit 1.1312 on Wednesday and trades well below the January peak of 1.2082. The decline reflects a powerful combination of US Dollar strength, geopolitical uncertainty and renewed concerns about Europe's exposure to higher energy prices.