UBS GWM, CHIEF ECONOMIST - PAUL DONOVAN
Loading…
FX BANK FORECAST · COVERAGE
Institutional FX coverage in your inbox
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 39 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 39 institutional desks. No promotion.
The desk highlights a crucial theme emerging from UBS's recent commentary on inflation, as articulated by Chief Economist Paul Donovan. While inflation expectations appear elevated, the lack of second-round effects, such as wage-price spirals, suggests a transitory nature to current pressures. Per the full note , the absence of structural inflation bias, despite persistent shocks, underlines the complexity and potential misperceptions around actual inflation rates. Additionally, the current geopolitical landscape, particularly the situation in the Gulf, could further shape market expectations, especially given the commentary relating to oil prices and U.S. asset speculative interest.
The prevailing sentiment is that inflation perceptions do not match the underlying data, as outlined in UBS's commentary. Donovan notes that inflation shocks, while noticeable, are failing to translate into sustained upward pressures that typically characterize entrenched inflationary environments.
A key point is that despite several transitory inflation events, the anticipated follow-through in wages and pricing pressures is absent. This context supports the notion that inflation may not be as concerning as currently perceived, contradicting some market narratives that suggest a dire outlook for price stability.
With our internal consensus on the USD/EUR suggesting a range around 1.075 (with a Min at 1.04 and a Max at 1.12), the commentary aligns well with the broader economic landscape being analyzed. Notably, jpmorgan maintains a target of 1.10 for March 2026, indicating a moderate appreciation of the USD, while bofa forecasts a more conservative target of 1.04 in the same timeframe.
Firms such as jpmorgan and citi view the current inflation dynamics through a lens that supports gradual economic recovery and cautious risk-on sentiment, while bofa expresses concern over the potential for renewed inflationary pressures ahead. This divergence reflects contrasting views on the pace of economic growth against inflation trajectories.
Monitor the implications for EUR/USD transactions in light of these shifting inflation expectations, as any unexpected economic data could provoke volatility in line with central bank communications.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should keep an eye on the 1.075 level in USD/EUR as a potential pivot point. If inflation pressures appear to stabilize, any commentary from central banks on upcoming interest rate strategies could further influence market movements.
Risks to this view
A resurgence in wage pressures driven by labor market tightness or unexpected shifts in global commodity prices could challenge the current lack of inflationary momentum, leading to potential recalibrations in market sentiment.
Inflation is perceived as being higher than it is, but despite persistent shocks second-round inflation effects are notably missing. View this email in a web browser Inflation fantasies UBS morning audio comment by Paul Donovan US October consumer price inflation is due. The element of guesswork in calculating inflation has risen recently.
That is compounded by the absence of data from October 2025 to use in comparison (the legacy of the 2025 government shutdown is still felt). Consumers are likely to perceive inflation as being higher than reported, given the undue importance placed on high-frequency purchases. The inflation from the Gulf war has had the bad manners to appear just as the inflation from tariffs was falling out of the consumer price calculations.
This has been the story since the pandemic—four temporary inflation shocks following one another in quick succession. The fact that there have been no second-round inflation effects (in particular, no wage-price spiral), in spite of the appearance of continuous inflation, argues against a structural inflation bias. US President Trump’s reiteration of a very low chance of strikes against Iran has helped to keep oil prices low.
The prospect of US Defense Secretary Hegseth facing impeachment may encourage further investor speculation. If Hegseth were to be a scapegoat for the war, it might make a diplomatic solution easier. There are a number of central bank speakers on the agenda—Waller from the US and Lane from Europe are probably the most notable.
Read important disclaimer 〉 Listen to today's Tuesday, 10 November update Listen now 〉 Recommended content Listen to past recordings in Paul Donovan's daily updates 〉 Nobel Perspectives - Exploring the questions that shape our world 〉 You have received this email because you registered at . Unsubscribe #end --> | Edit profile Publication data: UBS AG, P.O. Box, CH-8098 Zurich Based on previous e-mail correspondence with you and/or an agreement reached with you, UBS considers itself authorized to contact you via unsecured e-mail.
Warning: (a) E-mails can involve SUBSTANTIAL RISKS, e.g. lack of confidentiality, potential manipulation of contents and/or sender's address, incorrect recipient (misdirection), viruses etc. UBS assumes no responsibility for any loss or damage resulting from the use of e-mails. UBS recommends in particular that you do NOT SEND ANY SENSITIVE INFORMATION, that you do not include details of the previous message in any reply, and that you enter e-mail address(es) manually every time you write an e-mail. (b) As a matter of principle, UBS does NOT accept any ORDERS, revocations of orders or authorizations, blocking of credit cards, etc., sent by e-mail.
Should such an e-mail nevertheless be received, UBS is not obliged to act on or respond to the e-mail. Please notify UBS immediately if you received this e-mail by mistake or if you do not wish to receive any further e-mail correspondence. If you have received this e-mail by mistake, please completely delete it (and any attachments) and do not forward it or inform any other person of its contents.
For information on how UBS uses and discloses personal data, how long we retain it, how we keep it secure and your data protection rights, please see our Data privacy notice . © UBS 2026. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
How we cover this story
Stronger eurozone bank earnings reduce recession risks and support EUR carry positioning, though lack directional guidance on rate expectations.
Live cross-firm bank consensus across 39 desks — FX, oil & gold
View bank forecasts