UBS On-Air: Paul Donovan Daily Audio 'A dangerous game?'
The current volatility in chip manufacturer equities presents a complex backdrop for FX traders, particularly regarding USD behavior as central banks navigate imprecise economic data. Per the full note from UBS, remarks linking AI investment to gambling have caused reassessments in markets, albeit with limited global economic repercussions. Key Fed speakers like Governor Waller will be under the spotlight, and the Fed's precarious balancing act aims to manage rates while curbing inflation without sparking a recession. This scenario unfolds as the market anticipates upcoming inflation figures from Europe, which may further shape currency trajectories, especially EUR/USD and GBP/USD pairs.
What the desk is arguing
The desk posits that the recent turbulence linked to chip manufacturers, compared to gambling by the Broadcom CEO, has implications for USD positioning, especially with upcoming central bank communications. UBS notes that while these events might not significantly alter global economic patterns, they catalyze investor reassessment of risk, specifically in the tech sector, which can ripple through foreign exchange markets.
Choppy price action in semiconductor equities often correlates with broader risk sentiment, hence affecting traditional currency flows. As it stands, USD movements will also hinge on insights from US monetary authorities as they aim to balance interest rates amidst noisy economic signals.
Where it sits in our coverage
For EUR/USD, the current spot stands at 1.1253, with a consensus median target of 1.16 by December 2026. Specific targets from firms include: - rabobank: Mar26 1.1759 - hsbc: Mar26 1.1700 - cibc: Mar26 1.1866
This view aligns closely with the market consensus, sitting just below the upper end of forecasts. Notably, hsbc and nomura forecast similar medium-term pathing.
How other firms see it
Firms such as socgen and investec are aligned with this perspective on EUR/USD while others like scotiabank appear more cautious about the upside potential. This difference in sentiment highlights diverging views on the strength of the euro against persistent inflationary pressures in the US.
On the radar, recent CPI data releases may impact this discussion, as ongoing inflation trends in the US and Europe signal potential reactions in both EUR/USD and GBP/USD pairs as central banks respond accordingly.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Volatility in chip equities reflects broader market sentiment impacting FX.
- 02Fed communications from key members will guide USD short-term movements.
- 03Upcoming European inflation data will play a pivotal role in shaping euro valuation against the dollar.
Market implications
Traders should monitor the effect of central bank rhetoric, especially comments from Fed Governor Waller, on USD valuations. Additionally, inflation prints from Europe could trigger volatility in EUR/USD, potentially supporting further movement towards consensus targets.
Risks to this view
A significant catalyst that could challenge this call involves a sharp deviation in inflation trends or a monetary policy misstep by the Fed that could trigger unexpected shifts in trader positioning towards USD or its counterparts.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
Barclays | Bullish | 1.2100 |
Goldman Sachs | Bearish | 1.1200 |
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Tuesday the 13th of October. Chip manufacturers' share prices have been experiencing some turbulence following comments from the Broadcom Chief Executive that drew parallels between AI investing and the casino.
Of course, if the casino is represented by US Treasury Secretary House Besant as croupier, there is a reasonable chance the gamblers win. But the remarks have been enough to lead to some reassessment of the AI investment story. This is not likely to have a significant economic impact globally.
Large swings in chip manufacturing are hardly unusual. There is relevance for the Korean and the Taiwanese economies, of course. For a country like the States, so much of the investment in AI has leaked out of the economy via imported components.
The economic consequences of any reassessment would be evident, but more muted. We hear from several central bankers today, including four members of the US Federal Reserve. Fed Governor Waller is likely to get the most attention.
As a person, the markets are referencing in the absence of coherent policy leadership from Fed Chair Walsh. The Fed is playing a slightly dangerous game. With imprecise economic data, it seems to be trying to engineer an interest rate at the very top of the neutral range without tipping over into a recession-inducing monetary policy.
At the same time, it wants to give the impression of being tough on oil price inflation, which it cannot control. Diesel prices remain almost 80% higher than they were in January of 2025. And US President Trump's social media posts about a Russian-Ukraine energy ceasefire do not seem to have had any basis in reality, at least to judge from the actions of Russia.
Europe is offering final consumer price inflation data from the likes of the Netherlands and Germany. This is largely a non-event, as these numbers are almost never revised, not even in Germany, a country addicted to revising its other economic data with a predictable regularity. The benefit of the final numbers is we get a bit more detail as to what prices are actually moving.
But the expectation is there'll be no evidence of second-round effects from the oil shock, and the more elevated nature of inflation can be attributed to energy costs being passed through, albeit being passed through relatively swiftly. The UK's British retail consortium Like for Like Store Sales showed some strength from the UK consumer in September. Sales grew compared to last year.
Sources & References
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