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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
At a Glance
UBS highlights a stronger US dollar in its latest FX forecasts, emphasizing that the pathway to this strength is not linear. They project fluctuations and turbulence in the currency markets, driven by economic data releases and geopolitical developments.
Key Takeaways
Full Analysis
UBS contends that while the US dollar is on an upward trajectory, the journey will be marked by volatility and erratic movements. They cite factors such as changing interest rates, inflation data, and global economic performance as drivers of this non-linear strengthening.
The firm emphasizes that market participants should expect fluctuations as new economic data comes to light and geopolitical tensions evolve. This outlook implicitly challenges the view that a steady and predictable appreciation of the USD is forthcoming, urging caution among traders.
Our current consensus target for the USD reflects a gradual appreciation trend, aligning with UBS's view of a strengthening dollar but acknowledging the hurdles along the way. The consensus target stands at 1.075 with a range of 1.04 to 1.12, indicating a confidence in a stronger dollar, albeit with anticipated volatility.
In line with this analysis, other institutions have published similar targets that reflect their outlooks on the USD. Specifically:
Other firms have positions that complement or diverge from UBS's stance on the USD. For instance, Goldman Sachs frames a bullish outlook on the USD but emphasizes potential obstacles from international market dynamics.
Conversely, the view from BofA presents a more cautious approach, reflecting concerns over a possible slowdown in the US economy impacting dollar strength.
Market Implications
The anticipated dollar strengthening, accompanied by volatility, suggests a cautious trading environment. FX traders may need to adjust strategies to account for erratic market conditions, particularly around key economic data releases and geopolitical events.
From the original
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UBS expects the U.S. dollar to face significant headwinds as it approaches the end of the year. Factors contributing to this outlook include increasing market uncertainty and potential shifts in monetary policy that may deter dollar strength.
UBS projects a powerful surge in EUR/USD to 1.20 as the dollar weakens in 2025, a bullish view that aligns with the consensus but exceeds near-term targets. The call diverges from some firms like Morgan Stanley, which expects a decline by year-end.
The desk believes that the current state of the U.S. dollar reflects ongoing uncertainty stemming from erratic fiscal policies, contributing to its proximity to recent lows against major currencies. Per the full note from UBS, the market is grappling with concerns over incomplete policy retreats, amplifying investor anxiety. While the U.S. economic data expected today, such as consumer confidence and durable goods orders, may not significantly alter market perceptions, they illustrate the broader environment of political partisanship that could cloud the economic outlook. As such, the dollar's performance is expected to be closely linked to these upcoming releases and political developments.
The desk interprets UBS's positive outlook for US equities as a significant driver for currency sentiment, particularly within risk-sensitive FX pairs. Per the full note from UBS, the ongoing resilience of equity markets amidst geopolitical uncertainties suggests a favorable environment for risk-on positioning. As the market navigates these complexities, traders should note earnings performance and volatility triggers outlined by UBS as critical factors influencing market dynamics. The current risk-on sentiment can lead to further dollar weakness against other currencies, particularly if equity markets continue to rally.
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