In brief from a UBS note on the US dollar. Analysts at the banks are looking for a 1.05 – 1.12 EUR/USD range in 2025, but don’t discount dips under 1.05. Froecast 1.12 at the end of 2025.
UBS say that investor expectations of US tax cuts and tariffs aimed at boosting US manufacturing are supportive for the USD in the near term but in the medium term are looking for the dollar to slip.
UBS point to:
- the current USD strength exceeds historical relationships with US 10-year bond yields.
- market expectations for US and European rate cuts diverge from analysts’ forecasts, favoring a gradual euro recovery
- US economic conditions (specifically the prospect of further rate cuts and a higher debt burden) differ from 2017
- twin deficits from proposed policies may undermine long-term USD fundamentals
- Recovery potential seen for EUR, GBP, and CHF due to better fundamentals outside the USUSDCNY Position:
UBS do single out USDCNY, liking longs as a hedge against trade-spat scenarios affecting Chinese growth.
