Signal over Noise with Ulrike Hoffmann-Burchardi
The desk is bullish on the U.S. dollar as recent statements from President Trump are anticipated to shift market dynamics, especially regarding oil prices and housing affordability. Per the full note source, Trump's aggressive policy approach aligns with a broader Federal Reserve easing narrative sparked by softer labor market data. Notably, mortgage rates have dipped due to federal interventions, stimulating potential domestic spending and supporting the dollar. Amid geopolitical tensions and a focus on price stability influencing voter sentiment, the dollar's rally is expected to be supported through 2026.
What the desk is arguing
The desk maintains that the U.S. dollar is poised for a rally as President Trump's recent announcements are likely to provide robust support for the currency. The focus on housing and energy prices reflects a strategy that resonates with voter concerns, which consequently affects market sentiment and economic indicators. Per the full note source, Trump's directives to lower mortgage rates are significant, with rates now below 6% for the first time in years.
Moreover, the geopolitical landscape—particularly U.S.-Venezuelan tensions and the implications for oil supply—adds another layer of complexity. If successful, these geopolitical maneuvers could stabilize or lower oil prices, which would likely be welcomed by U.S. consumers and boost support for the dollar given the importance of energy prices in the inflation narrative.
Where it sits in our coverage
Our consensus target for the U.S. dollar against a basket of currencies stands at 1.075 with a range between 1.04 and 1.12. Specific targets from key institutions illustrate the divergence in market outlooks:
The desk's bullish stance aligns closely with jpmorgan, whereas bofa holds a contrarian view, predicting a significantly lower target, contributing to a mixed sentiment within the market.
How other firms see it
Firms like jpmorgan are aligned with the desk's bullish perspective on the dollar, hinging their forecast on favorable domestic policies and geopolitical developments. In contrast, bofa takes a contrary stance, suggesting a bearish outlook for the dollar.
Movements in oil prices will play a critical role in validating the desk's thesis, particularly as energy markets react to both U.S. domestic policies and geopolitical events involving key oil-producing nations.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01U.S. dollar bullish sentiment driven by Trump's focus on economic stability and voter concerns.
- 02Recent drop in mortgage rates to sub-6% could stimulate domestic spending.
- 03Geopolitical tensions, particularly in Venezuela, may influence oil prices and positively affect dollar strength.
- 04The desk’s view contrasts with a bearish outlook from **bofa**, highlighting diverging market opinions.
Market implications
Traders should monitor the 1.075 level closely as a signal for potential dollar strength, especially with Trump’s policies aiding consumer sentiment. Oil price developments, particularly regarding Venezuela, will also be critical in shaping dollar dynamics moving forward.
Risks to this view
A significant escalation in geopolitical tensions or a failure to reduce oil prices effectively could undermine the bullish case for the dollar. Additionally, unexpected shifts in Federal Reserve policy or labor market recoveries could drive the dollar lower, particularly if inflation concerns dissipate.
Hello and welcome to Signal Over Noise. I'm Ulrike Kaufmann-Borchardt, CIO for the Americas and Head of Global Equities for UBS Wealth Management. Markets kicked off the year on strong footing.
Softer U.S. labor market data last week reinforces our view of more Fed easing this year. Gains broadened beyond mega cap tech into financials, industrials, energy, and small caps. And geopolitical tensions lifted oil and safe haven assets.
But the clearest market signal last week came from President Trump's announcements. And that is that this year, the markets will run on Trump's midterm election playbook. If there's one golden rule for U.S. elections, it is that voters don't vote on policy, they vote on prices.
Housing, gasoline, interest rates, and coffee matter. And the policy actions of the first 10 days of the year show that the administration's focus has turned squarely to its mainstreet. First, housing affordability.
Last Thursday, President Trump instructed Fannie and Freddie to buy $200 billion in mortgage bonds. As a result, mortgage rates dipped to below 6% for the first time in four years. Second, gas prices at the pump.
The capture of Maduro last weekend was at least partially motivated by a similar objective to lower oil prices by tapping into Venezuela's large proven oil reserves and increase long-term supply of oil to the United States. President Trump explained, a very big factor for this involvement will be the reduction in oil prices for the American people. Venezuela's oil is predominantly heavy and extra heavy crude oil, a type U.S. refiners are uniquely set up to run.
The other two geopolitical flashpoints, Iran and Russia, are equally important for oil prices. A resolution of both would bring geopolitical reprieve and lower oil prices. Both likely wins in the eyes of the U.S. voters.
With the death toll in Iran rising over the weekend, a U.S. intervention is looking more likely. President Trump threatened military action earlier last week if Iranian leaders killed protesters. The current protests are likely the most widespread since the Islamic Revolution in 1979.
And the Iranian regime looks to be in its most vulnerable position yet, militarily weakened after the conflict with Israel and crippled by an economic crisis. The third item on the agenda, grocery prices. In mid-November, Trump signed an executive order that rolled back tariffs on more than 200 imported food and agricultural products, such as coffee, beef, bananas, and more.
These items were exempted from the reciprocal tariffs. The likely reason? Lower grocery prices are positive for the U.S. electorate.
And lastly, interest rates. On Friday evening, President Trump announced plans to cap credit card rates at 10% for one year starting January 20th. The rate cap will likely hurt U.S. bank stocks on Monday.
The market had seen Trump's policies as a tailwind to banks, and this announcement turns the tables. So against this backdrop, what is the call to action for investors? We would view a pullback in bank stocks as a buying opportunity for a number of reasons.
Congress would need to pass legislation to enact it. And there are lots of details to work through, which will take time. The cap would likely only have limited impact.
It only likely applies to new loans and would be limited to one year in duration. And issues could offset the lost interest income by imposing new fees. And then U.S. earnings season starts next week, with J.P.
Morgan kicking off the reporting cycle for financials on Tuesday, followed by Bank of America and Citi on Wednesday and Goldman and Morgan Stanley on Thursday. We expect strong results from the U.S. megabanks. The yield curve and capital markets activity have been supportive.
Also, we see 2026 as the year of the Great Broadening, and that is both for cyclical and structural reasons. The growth policies in the U.S. will likely continue to lift cyclical sectors, sectors which have been lagging over the past 12 months. Consumer discretionary could be strong if more policy actions support the lower and middle income consumer.
And structurally, we see the AI trade broadening from the picks and shovels to the beneficiaries of AI. After three years of concentration in the AI7, the chip companies and cloud providers, we view the risk-reward as favorable for the users of AI. Historical transformational innovation has shown that in any innovation cycle, there's a performance handover from the enablers to the users of a new technology.
And after the AI7 appreciated 200% in three years, about five times the appreciation of the rest of the market, we see room for catch-up of those companies among the 493 that leverage AI to improve business outcomes. Financials and healthcare remain our top picks in this regard. So to conclude, two main takeaways, buy the pullback in U.S. banks and broaden portfolio exposure by adding to cyclical sectors.
With this, stay well and stay ahead. UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management Business of UBS AG or its affiliate, UBS. This material has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and is published for informational purposes only.
As a firm providing wealth management services to clients globally, UBS AG and its subsidiaries offer both investment advisory services and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate arrangements. In the USA, UBS Financial Services, Inc. is a subsidiary of UBS AG and a member of FINRA SIPC.
For information, please visit our website at ubs.com forward slash working with us. For a full legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at ubs.com forward slash CIO dash disclaimer.
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