UBS analysts have predicted a potential recovery for the euro, with the EUR/USD exchange rate projected to range between 1.05 and 1.12 in 2025. The anticipated end-of-year rate is 1.12.

The current strength of the US dollar is not in line with historical trends related to US 10-year bond yields, and UBS expects a medium-term decline in the dollar's value. Diverging market expectations for rate cuts in the US and Europe indicate a gradual recovery for the euro. The economic landscape has changed since 2017, with potential rate cuts and increasing debt burdens posing challenges for the dollar. Proposed policies may result in twin deficits that could undermine the long-term fundamentals of the USD. UBS also notes that diversified supply chains and reshoring efforts are mitigating the effects of US trade isolationism compared to previous years. The firm believes that the euro, British pound, and Swiss franc have recovery potential due to stronger fundamentals outside the US.

In the context of trade tensions, UBS recommends long positions in USDCNY as a hedge against potential impacts on Chinese growth.