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UBS strategists have revised their EUR/USD forecast, anticipating a test of parity soon due to stronger US economic activity, before a rebound towards the 1.05-1.10 range by year-end. The euro faces pressure from a subdued European economy and potential US trade tariffs, complicating the outlook. Risks include possible Federal Reserve rate hikes and the impact of tariffs on European growth, which could keep the exchange rate below parity.
UBS has revised its EUR/USD forecast, anticipating a test of parity soon due to stronger US economic activity, before a rebound towards the 1.05-1.10 range by year-end. The euro faces pressure from a subdued European economy and potential US trade tariffs, complicating the outlook. Risks include possible Federal Reserve rate hikes and the impact of tariffs on European growth, which could keep the exchange rate below parity.
The US dollar (USD) has started 2025 strongly, with the DXY reaching 110, its highest since late 2022, driven by robust economic data and higher yields. UBS anticipates this strength to continue in the first half of the year, potentially pushing the DXY to 115, despite mixed global economic conditions and looming US tariff risks. However, UBS warns of a possible reversal in the second half of 2025, citing the dollar's overvaluation and elevated investor positioning.
The US dollar has reached two-year highs post-election, driven by strong economic data and reduced rate cut risks. However, UBS strategists caution against viewing this strength as a buying opportunity, citing an already factored-in positive outlook and the dollar's rich valuation. They advocate for contrarian strategies, favoring currencies like the British pound and select emerging market currencies, while predicting a 6% decline in the DXY over the medium term due to easing US yields.
Gold reached a record high of USD 2,670/oz on September 24, driven by geopolitical concerns and a declining US dollar. CIO has upgraded its year-end target to USD 2,750/oz and mid-2025 target to USD 2,850/oz, emphasizing gold's long-term hedging benefits and recommending a 5% allocation in diversified portfolios. Despite signs of slowing Chinese demand, underlying interest remains strong, particularly with increasing ETF demand as uncertainty rises ahead of the US elections.
Dominic Schnider
People
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