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UBS has revised its dollar forecast downward for the second time in less than two months, attributing the change to the ongoing US-China trade tensions. Analysts noted that President Trump's tariff policies have negatively impacted US capital flows more than expected, leading to a more favorable outlook for other safe-haven currencies like the euro and yen.
UBS analysts indicate that the traditional inverse relationship between the U.S. dollar and stocks has weakened, as the dollar fell nearly 4% despite a stock market sell-off driven by tariffs. President Trump's upcoming tariff announcement could further impact investor sentiment, with UBS suggesting strategies like buying euro dips and being long on the Japanese yen. The analysts noted that recent U.S. economic data and a relatively orderly equity decline have contributed to this shift in correlation.
The euro is poised to gain from a potential shift in global reserve currency dynamics as Europe unites to enhance defense spending, according to UBS analysts. Following a significant military investment announcement from Germany and a recent agreement among EU and UK leaders, the euro has experienced its strongest rally since 2015. This newfound unity may lead to increased European capital retention, positioning the euro as a viable alternative to the US dollar in global reserves.
The euro is poised to gain from a potential shift in global reserve currency dynamics as Europe unites to enhance defense spending, according to UBS analysts. Following a recent agreement among EU and UK leaders, Germany announced significant defense investments, which could lead to increased European capital retention and elevate the euro's status as a reserve currency, challenging the dominance of the US dollar. Currently, the euro accounts for only 20% of official foreign-exchange reserves, while the dollar holds over 57%.
Vassili Serebriakov
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