BNP Paribas forecasts US growth above potential in 2026, with GDP expanding 2.4% versus 2.1% in 2025. It expects inflation to overshoot at 3.8% in 2026 and to persist through 2028, linking the pressure to higher oil prices and tariffs. The bank also points to a split pattern in activity, associated with investment tied to AI and consumption concentrated among wealthier households.<\/p>\n
On policy, BNP Paribas sees the Fed Funds target range holding at 3.5%\u20133.75% as the FOMC maintains a two-sided outlook. In foreign exchange, it projects a gradual USD depreciation against the euro, with EUR\/USD at 1.21 by Q4 2026 before moving to 1.25 by Q4 2027. Its base case assumes a gradual normalisation in the Middle East while price tensions remain.<\/p>\n
With the US economy showing strong growth, we see a gradual path of dollar depreciation against the euro ahead. The current EUR\/USD exchange rate is trading around 1.18, and we anticipate it will reach 1.21 by the fourth quarter. This view is based on continued economic resilience and a diversification away from the dollar.<\/p>\n
The Federal Reserve is expected to keep its target rate steady at 3.5% to 3.75% for the remainder of the year. The latest CPI data from May showed inflation holding at 3.7%, reinforcing the idea that the Fed has no immediate reason to cut rates. This stability from the central bank suggests any currency moves will be slow and orderly.<\/p>\n
For the coming weeks, we are looking at buying longer-dated EUR\/USD call options, specifically those expiring in September or December 2026. A strike price around 1.20 seems appropriate to capture the anticipated upward drift. This strategy allows us to profit from the directional move without needing it to happen immediately.<\/p>\n
Given the forecast for a very gradual appreciation, we also see an opportunity in the low volatility environment. The Cboe EuroCurrency Volatility Index is trading near 5.5, a multi-year low, which makes selling options attractive. We are considering selling out-of-the-money puts with July 2026 expirations to collect premium from the expected stability.<\/p>\n
This outlook is reinforced by a steady European Central Bank, which held its own rate at 3.25% last month amid its own inflation concerns. Historically, a move for EUR\/USD back towards 1.21 is not unprecedented, as it would simply be a return to levels seen in early 2021. The key factor is the slow, grinding nature of the expected move.<\/p>\n","protected":false},"excerpt":{"rendered":"
BNP sees 2026 US growth 2.4%, persistent inflation, steady Fed rates, and gradual EUR\/USD rise to 1.21.<\/p>\n","protected":false},"author":87,"featured_media":47724,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71],"tags":[],"class_list":["post-49461","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t