mycryptopot — The greenback has began the 12 months on the entrance foot, flirting with multi-decade highs, however strategists from UBS are backing a reversal within the second half of the 12 months because the buck is now in overvalued territory.
“Whereas the USD has strengthened additional in 2025, we nonetheless imagine that 2025 can be a narrative of two halves—USD power in 1H, and a partial or full reversal in 2H,” UBS strategists said of their newest market outlook.
The decision for a softer greenback within the again half of the 12 months comes as the index has appreciated by roughly 9% since late September, not too long ago buying and selling above the 110 stage and taking the buck to frothy ranges.
“The USD at the moment buying and selling near multi-decade highs in strongly overvalued territory and elevated investor positioning (with the CFTC futures displaying the best stage of greenback web size since 2015) underpin this narrative,” the strategists mentioned.
The greenback’s power has been pushed by better-than-expected U.S. financial knowledge, together with nonfarm payrolls and the companies sector buying managers’ index, which have led to decrease expectations for Federal Reserve price cuts this 12 months.
Whereas markets proceed to reprice Fed price cuts, with consensus now for only one price minimize this 12 months, UBS mentioned it continues to count on two cuts. “We nonetheless count on the Fed to chop charges twice this 12 months, for a complete of 50bps of easing, however don’t count on these reductions till 2Q and 3Q,” the strategists mentioned.
For the close to time period, nevertheless, U.S. exceptionalism is more likely to proceed to help the greenback, they added, financial knowledge to remain robust.
With only a beneath every week to go till President-elect Donald Trump’s inauguration, UBS flagged the potential of recent tariffs offering the greenback with a carry. “Tariff dangers don’t look like totally priced in,” the strategists famous.
