US Dollar: Gradual depreciation path versus Euro – BNP Paribas

FXStreet Insights Team FXStreet

BNP Paribas expects the US economy to grow above potential in 2026, with GDP at 2.4% and inflation overshooting at 3.8%. The bank sees the Fed Funds target range steady at 3.5%-3.75% as the FOMC adopts a two-sided outlook. In FX, BNP Paribas projects a gradual US Dollar depreciation against the Euro, with EUR/USD reaching 1.21 by Q4 2026 and 1.25 by Q4 2027.

Fed steady as Dollar weakens gradually

"The US economy is expected to grow above its potential in 2026, with an average annual growth rate of 2.4%, a yearly improvement (up from 2.1% in 2025). This apparent resilience to energy, uncertainty and tariff and energy shocks, together with above-trend productivity growth, masks K-shaped growth, driven by investment linked to AI-optimism and consumption by the wealthiest amid a wealth effect (historically high stock market valuations)."

"Inflation overshooting is set to continue (3.8% in 2026) at least through 2028, largely because of the rise in oil prices and tariffs – although the impact of these appears to be less significant than expected."

"We expect the Fed Funds target range to remain steady at 3.5% - 3.75%, with a FOMC shifting to a ‘two-sided outlook’, signaling equal readiness to implement rate hikes or cuts if warranted."

"In our base-case scenario (gradual normalisation of the Middle East situation with persistent price tensions), we expect the USD depreciation against the EUR to resume, albeit very gradually, amid broader diversification away from the dollar."

"We forecast EUR/USD to reach 1.21 by Q4 2026 and 1.25 by Q4 2027."

(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.

GBP/USD revisits 1.3530; Dollar pushes harder

GBP/USD adds to the weekly correction and recedes toward the 1.3530 zone on Friday. Indeed, Cable faces increasing selling pressure on the back of extra gains in the Greenback, particularly fuelled by Chair Warsh’s speech at the Jackson Hole Symposium and the US NFP Annual Revision (-79K).

EUR/USD breaches below 1.1600, multi-day lows

EUR/USD now accelerates its decline and retreats to seven-day troughs in the sub-1.1600 region at the end of the week. The pair’s pullback comes on the back of the strong rebound in the US Dollar after Chair Warsh delivered a hawkish message in Jackson Hole, while the US NFP Annual Revision came in at -79K.

Gold challenges its 200-day SMA near $4,530

Gold’s decline gathers fresh steam, hitting weekly lows while disputing its critical 200-day SMA near $4,530 per troy ounce. The yellow metal’s increasing weakness comes in response to the generalised upbeat tone in the US Dollar and the widespread rebound in US Treasury yields, as investors continue to reprice a Fed rate hike in September.

Week ahead: RBNZ and BoC decide on rates ahead of all-important US NFP

The US dollar staged a modest recovery this week, perhaps as traders decided to cover some of their short positions amid slightly stickier or in-line US PCE inflation numbers for July, confounding expectations of softer prints amid the softness revealed in the CPI data for the month.

CFTC Report: CAD short covering leads; Gold buying surges

The week in one sentence: speculative positioning shifted more constructively in the week to August 25. CAD short covering led the move, followed by a broad reduction in EUR shorts and renewed Gold buying. GBP and VIX positioning also improved, while JPY positioning deteriorated and WTI flows diverged from weaker prices.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.