EUR: Backed by comparative expansion and fiscal adjustments – BNP Paribas

BNP Paribas Predicts Euro Strengthening Against the Dollar

According to BNP Paribas Economic Research, the Euro is set to appreciate against the US Dollar, driven by shifts in US fiscal policy and anticipated economic growth in Europe. The bank envisions a steady, moderate climb in the EUR/USD rate, reaching 1.20 by the fourth quarter of 2026, as European fundamentals are expected to outperform those of the United States.

Euro Poised to Outperform Other Currencies

Economic growth in Europe is projected to remain solid in 2025 at 1.5%, with further improvement to 1.6% in 2026. Quarterly growth is forecasted to hold steady at 0.5% throughout the year.

Despite a slower quarterly pace of 0.3% in 2027, the annual average growth rate is expected to stay at 1.6%, supported by positive carryover effects. Fiscal initiatives in Germany, increased military expenditures, and investments in artificial intelligence across Europe, along with a resilient labor market, are key factors supporting this outlook.

However, the outlook is clouded by ongoing uncertainty, including fragile EU-US trade relations and rising tensions with China. Inflation is likely to remain below the European Central Bank’s 2% target in 2026.

As economic activity gains momentum, inflation is anticipated to pick up gradually in 2027, though the increase should be moderate. This scenario could prompt the European Central Bank (ECB) to raise its policy rate in the second half of 2027, potentially lifting the deposit facility rate to 2.5%.

BNP Paribas expects the US Dollar to continue weakening against the Euro. The combination of evolving fiscal policies, stronger European growth, and a slowdown in the US economy supports the forecast of a gradual rise in the EUR/USD exchange rate, reaching 1.20 by late 2026.

(This report was produced with assistance from artificial intelligence and reviewed by editorial staff.)