On Thursday, BNP Paribas released its 2025 outlook report, painting a picture of economic trends with a focus on Federal Reserve policies, U.S. Treasury yields, and the future performance of the dollar. The bank believes that amid a gradual economic soft landing, U.S. Treasury yields will significantly rise by 2025, while a strong dollar could push the euro-dollar exchange rate close to parity.
According to the report's analysis, as the tariffs of the impending Trump administration take effect, U.S. inflation is expected to turn around by mid-2025, gradually increasing from current low levels. This inflation trend will prompt the Federal Reserve to maintain a steady interest rate policy throughout the year to avoid market volatility and the economic risks associated with excessive tightening.
Calvin Tse, BNP Paribas' Head of Americas Macro Strategy, advises investors to underweight U.S. Treasury bonds in 2025. He notes that as inflation gradually accelerates, the 10-year Treasury yield is expected to rise to 4.65% by the end of 2025. This assessment is based on an optimistic outlook for a soft economic landing and an evaluation of the inflation recovery trend.
Additionally, the bank believes the strong dollar trend will continue, putting pressure on other major currencies. Specifically concerning the euro-dollar rate, BNP Paribas anticipates the exchange rate might hit parity. This prediction is closely related to the robust fundamentals of the U.S. economy and the policy environment.
In summary, BNP Paribas' 2025 outlook centers on recovering inflation, rising yields, and stable Federal Reserve policies, advising investors to adjust asset allocations to navigate potential structural changes in the market.
