On Tuesday, UBS signaled that a slowdown in the US economy could lead to a weaker US dollar as the Federal Reserve may begin to ease monetary policy. For investors, UBS sees the EUR/USD exchange rate, which has entered the range of 1.10-1.15, rising above 1.15 by 2025.
The brokerage notes that any drops below 1.10 could be an opportunity to reduce exposure to the US dollar, implying a strategic adjustment in response to expected currency movements.
UBS expects the Fed to begin its monetary easing cycle in September September, with interest rate cuts likely to be more robust than those made by its global peers.
This shift is expected to be due to inflation moving towards target levels, a weak labor market, and growth ending above potential, which UBS believes does not justify a very restrictive monetary policy anymore.
UBS forecasts suggest that the past three years of superior U.S. economic performance compared to other countries justify higher interest rates at the Fed. However, changing economic conditions in the US are set to end a period of ‘US dollar exceptionality’ that has kept the dollar at high levels.
The company expects these combined domestic factors to contribute to the widespread weakening of the US dollar.
Read also:Breaking news: The dollar is near a key support level. Does the 100 low fall with today’s data?
In contrast, growth in Europe remains weak, but not as much as the ECB is expected to change course.
UBS expects the ECB to cut interest rates by 25 basis points each quarter throughout the year and possibly until mid-2025. The ECB’s less aggressive approach compared to the expected cuts by the Federal Reserve is seen as a comparative advantage for the euro.
Moreover, Europe’s trade surplus, which previously supported the euro, has returned to pre-Ukrainian war levels after the temporary deficit caused by the 2022 energy crisis. This recovery in the trade balance is once again seen as a factor supporting the euro.
This article was translated with the help of an artificial intelligence program after an editor’s review. For more details please refer to Banha Terms and Conditions
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