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BNP Paribas analysts have revised their outlook for the US dollar, forecasting a gradual depreciation amid expectations of sustained economic growth and controlled inflation. They project US GDP to expand to 2.7% in 2026, with inflation easing to 3.1%, which would keep the Federal Reserve in a holding pattern with the Fed Funds rate at 3.5%-3.75%. This scenario suggests the USD may weaken against other major currencies as the Fed avoids aggressive rate hikes.
For forex markets, the Fed's prolonged rate pause could pressure the USD, particularly against high-yielding currencies like the Australian dollar or New Zealand dollar. Traders may also focus on divergent monetary policies from the European Central Bank or Bank of Japan, which could create cross-currency opportunities. The USD's gradual depreciation could benefit emerging market equities and commodities priced in USD, such as gold and oil.
Investors should monitor upcoming US economic data, including employment figures and inflation reports, for clues about Fed policy. A stronger-than-expected labor market might delay rate cuts, supporting the USD, while softer data could accelerate its decline. Central bank communications and global risk appetite will also shape USD momentum in the coming months.
