UBS On-Air: Paul Donovan Daily Audio 'Taking down the trade temperature'
The desk posits that recent signs of easing trade tensions between the U.S. and China, as indicated by Treasury Secretary Bessent’s comments on an impending meeting between Presidents Trump and Xi, are boosting market sentiment. This outlook proposes a potential reduction in trade hostility which could stabilize the USD against key currencies like the EUR and GBP. Per the full note source, current projections suggest a more favorable trading environment, pushing traders to consider opportunities in U.S. dollar pairs. With UBS setting a robust consensus target for EUR/USD at 1.20 by December 2026, the market is bracing for supportive data ahead.
What the desk is arguing
The desk frames this as a critical juncture in U.S.-China trade relations, with potential positive fallout for the dollar. Significant market expectations are built around forthcoming engagements between the leaders, translating into optimism regarding trade policy changes, as suggested by market reactions and historical context.
Supporting this perspective, UBS has placed a target for EUR/USD at 1.20, with other firms issuing varying forecasts ranging from 1.12 to 1.25, signaling a recognition of the potential for USD strength should clarity on trade issues manifest positively.
Where it sits in our coverage
Currently, our consensus target for EUR/USD stands at 1.20, with various firms indicating different ranges amidst expectations of stabilization: - ubs: Dec-26 target 1.2000 - deutschebank: Dec-26 target 1.2500 - barclays: Dec-26 target 1.2100
The desk's EUR/USD view aligns closely with ubs, at the upper bound of the spread while deutschebank and barclays are positioned slightly higher, indicating a divergence in perspectives on potential movements.
How other firms see it
Firms such as hsbc and mufg share a more optimistic outlook, aligning their targets around 1.35 or better for GBP/USD, suggesting a broader belief in a robust dollar amidst potential trade negotiations. Conversely, firms like bofa exhibit a more conservative stance with lower targets, hinting at skepticism regarding upcoming trade forums.
The optimistic trajectory for EUR/USD echoes the anticipated impact of trade policy updates while GBP/USD is likely to respond to UK economic data, including labor market metrics, which could further specify the currencies' movements.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Recent statements indicate a positive shift in U.S.-China trade relations, enhancing market sentiment.
- 02UBS has set a short-term target of 1.20 for EUR/USD, positioning it firmly at the upper end of the consensus range.
- 03Market expectations hinge on the outcomes from the U.S.-China meeting later this month.
- 04The UK labor market data is also crucial, potentially impacting GBP/USD dynamics.
Market implications
Watch for EUR/USD approaching the 1.20 target, particularly if the upcoming meetings yield favorable narratives. This sentiment may influence positioning across USD pairs.
Risks to this view
A reversal could occur if the bilaterals do not conclude positively, or if labor market data from the UK shows unexpected weakness, undermining current bullish sentiment on GBP.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
MUFG | — | 1.2000 |
Citi | — | 1.1200 |
UOB | — | 1.1445 |
Good morning. This is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 3.30 in the morning London time on Tuesday the 14th of October.
Financial markets appear to be detecting a certain amount of shifting about over trade issues coming out of the US administration. US Treasury Secretary Besant stated that US President Trump and China's President Xi would indeed meet later this month. Markets have extrapolated from past discussions between the leaders to assume that trade hostility spin will not in fact turn into trade hostility substance.
Financial markets of course can adapt to such policy fluidity more readily than real world businesses. By their nature real world businesses are making decisions that are less easily reversed. For the time being however the messaging is positive.
In France the current Prime Minister is expected to unveil budget plans at a meeting of the new government. Whether these budget plans are anything other than aspirational remains to be seen. The arithmetic of the National Assembly is not necessarily working in favour of a budget solution.
However the situation is not so bad or indeed dire that the government would have to shut down or that large numbers of public servants would be fired. The business of government will continue to function in France even if the politics of government does not. The UK's British Retail Consortium like for like sales data which measures the value and thus incorporates inflation effects on sales showed some slowdown in September.
We get some labour market data from the UK later on. This data comes packed full of official health warnings and so is to be treated with quite a lot of caution. The general narrative of this is that the UK workforce is getting positive real income growth and that there is little reason to fear unemployment.
Nevertheless the UK's savings rate is relatively high which is somewhat surprising given the relative strength of the UK economy compared to other members of the G7. For those watching the drama in Argentina the economy minister there has declared that the US is willing to continue buying Argentinian pesos and bonds. The peso did rally yesterday taking it back to levels not seen for two whole weeks.
To sustain this investors must believe that there is genuine fundamental value in these currency levels and perhaps also that the political commitment of the US to bailing out Argentina during a US government shutdown is also as strong as the Argentine economy minister appears to believe. That's all for today. Have a good day. is a subsidiary of UBS AG and a member of FINRA SIPC.
Sources & References
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