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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.
The desk interprets the geopolitical developments surrounding a potential ceasefire in the Russia-Ukraine conflict as largely neutral for economic indicators, contrary to concerns that such events could alter defense spending or energy supplies. Per the full note from UBS, while a ceasefire is beneficial from a humanitarian perspective, it likely will not change existing economic dynamics or sanctions. The real concern lies in the implications of potential US tax increases, which could negatively impact consumer prices and broader economic activity if enacted, as suggested by the commentary. The potential for increased tax burdens is seen as a more significant economic threat than the ceasefire, warranting close monitoring ahead of any tax policy announcements.
The desk views the proposed ceasefire in Ukraine as non-disruptive to the economic landscape, a stance supported by UBS Chief Economist Paul Donovan's analysis. He notes that while this temporary pause may contribute positively to humanitarian efforts, it is unlikely to alter critical economic factors such as defense expenditure and energy supply chains in Europe.
In contrast, Donovan highlights growing concerns about proposed US tax hikes, stating that should these taxes be implemented, they could lead to increased consumer prices particularly in sectors like housing and essential goods. Observers should note that rapidly rising prices in everyday items, if they follow the implementation of these taxes, will have a palpable impact on consumer sentiment and spending.
Given our analysis, the consensus target for the EUR/USD is currently pinned at 1.075, within a range from 1.04 to 1.12. Firms with established targets include: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
This interpretation aligns closely with jpmorgan which reflects a bullish outlook within this band, particularly as consumer taxation enters the spotlight as a central theme of economic policy.
There is a general agreement among firms like jpmorgan and goldman that the ceasefire will have minimal economic repercussions in the short term. Conversely, bofa stands in opposition, suggesting that the geopolitical instability could create adverse market reactions.
Traders should watch the EUR/USD closely as it might respond to broader sentiment changes tied to US fiscal policies and any shifts in the geopolitical landscape stemming from the Ukraine situation. Expect fluctuations as market participants digest further news related to US tax strategies and sanctions enforcement.
With no immediate high-impact events on the calendar, attention will focus on potential developments regarding the US tax policy announcements that may arise in the coming weeks. This will be critical in shaping economic forecasts and trading strategies.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should watch for a potential testing of psychological levels around 1.075 in the EUR/USD as the market reacts to news on US tax increases. Any confirmed announcements or policy pivots will be pivotal.
Risks to this view
A reversal in this outlook could occur if geopolitical tensions escalate or an unexpected shift in US fiscal policy moves towards less aggressive taxation, which might stabilize consumer prices and restore confidence.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Monday the 3rd of March. There has been quite a lot happening over the weekend and the disruption is probably economically negative on balance.
A generally neutral event was the idea of a coalition of the willing moving to create a one-month ceasefire in the Russia-Ukraine war. While a ceasefire is to be welcomed on humanitarian grounds, it does not change much in terms of economics. Defence spending is still going to have to increase and energy supplies to Europe are unlikely to be substantially altered.
Sanctions against Russia already are being avoided, so trade is also unlikely to be affected too much in the near term. US tax increases are a more negative situation. If every threat to tax US consumers were taken at face value, US President Trump would be presiding over the most aggressive set of tax increases in decades and it's hard to see how a significant economic downturn could be avoided.
Markets continue to believe that these taxes will not be imposed and that there will be further retreats from the President's threats. The latest iteration were threats to tax US consumers of lumber, which basically means the housing industry. Increasing the price of new home construction will do nothing to make housing more affordable.
Taxes on US consumers of goods from Mexico and Canada, due to be imposed tomorrow, were being reiterated over the weekend. Although already the far-off bugle cry of the retreat is echoing over the battlefield of the supposed trade war, with US Commerce Secretary Lutnik saying that the rate of tax has not yet been set. These taxes, if imposed, will visibly raise prices of higher frequency purchases within a matter of weeks.
An avocado or a propane tax is something consumers will recognise and they will realise that it is they, and not exporters, who are having to pay the price. Even if the taxes are short-lived, therefore, the uncertainty caused by these taxes would have a negative economic effect. Lutnik also suggested that government spending could be separated from GDP.
GDP as a concept has many problems. The data is not accurately measured in real time, although government spending is actually one of the easier parts to calculate. As the world has evolved from output economics to impact economics, GDP is not a great proxy for living standards, and it is ill-suited to capture the benefits of efficiency gains that come from the fourth industrial revolution.
But government spending should be a part of it, and removing government spending from the expenditure calculation raises questions about what you do with the income from government used in the income calculation of GDP, for instance. It seems quite likely that Lutnik doesn't fully grasp the concept of what GDP is. Things like tempering with economic data and the idea of a crypto reserve, for that matter, raise questions around international faith in US assets as a reserve.
The dollar's reserve status is not yet fully challenged, but this sort of action may start to raise some important questions. The data calendar is a mix of reliable data and partisan politics. The UK's January credit data is hard evidence, but it's not expected to be terribly exciting.
The US ISM business sentiment poll has to be treated with considerable caution in the context of extremes of political partisanship. One issue with all this partisanship is that it may create real economy breaks. If one side or another lives in an unrealistic worldview, their actions may not be affected until reality hits.
That means that changing economic actions may be more abrupt than incremental. That's all for today. Have a good day.
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.
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