UBS has issued a forecast for the EUR/USD currency pair, predicting a volatile trajectory with expectations that it will gradually rise above 1.10 and approach 1.16 by the end of 2025.
The firm cautions that the upcoming U.S. elections could pose short-term risks to this outlook, particularly if there is a Trump victory, which may lead to periods of dollar strength. However, UBS believes that a second Trump administration may not be entirely beneficial for the dollar due to potential negative impacts on U.S. GDP and consumer spending.
The U.S. dollar has shown signs of recovery after a period of weakness, while the European Central Bank (ECB) has taken a more cautious approach by cutting rates. This divergence in monetary policy is expected to influence the EUR/USD exchange rate.
UBS maintains a positive outlook for Europe and anticipates a pickup in growth around 2025. The path for the EUR/USD pair is expected to be bumpy, with upcoming U.S. labor market reports and external factors like Hurricane Milton playing a crucial role.
Despite the risks associated with the elections, UBS believes that the likelihood of the EUR/USD exchange rate rising is greater than that of it falling. The firm identifies key support and resistance levels and advises investors to view the recent drop below 1.10 as an opportunity to reduce exposure to the U.S. dollar. UBS recommends selling during periods of dollar strength and suggests that any initial strength in the dollar following a Trump victory should be viewed as a chance to reposition portfolios.
The firm's forecast reflects a broader sentiment in the market, where investors are increasingly cautious about the implications of political events on currency movements. The long-term outlook for the euro remains positive, presenting a unique opportunity for investors to capitalize on fluctuations in the EUR/USD pair.