Dollar strength to continue, UBS says, forecasting EUR/USD end year below parity

mycryptopot — The greenback bulls aren’t more likely to collapse anytime quickly as increased Federal Reserve rates of interest associated to different central banks and pro-growth insurance policies together with tax will probably make sure the buck continues come on high in opposition to its G-10 friends together with the euro, Canadian greenback, and the yen.

“[T]he probably path remains to be USD energy as a part of the pure consequence of the US following insurance policies that work to generate extra demand, excessive rates of interest and likewise a stronger foreign money, concurrently different nations are chopping rates of interest and downgrading inflation fears relative to progress ones,” UBS mentioned in a latest observe.

EUR: to finish 12 months under parity in opposition to USD: Three bearish elements weighing on euro

1. Rate of interest convergence with different low-yielding currencies just like the Japanese yen and Swiss franc is predicted to extend the euro’s attraction as a funding foreign money.

2. The political outlook for the eurozone stays unhelpful, with potential dangers stemming from German elections.

3.Considerations about U.S. tariffs pose a risk to the euro space financial system.

UBS forecasts the to finish 2025 at 0.990.

JPY: to take cues from BoJ amid hopes for price hikes to show the tide

The yen’s outlook is tied to expectations of Financial institution of Japan coverage shifts. UBS expects the BOJ will ship 75 foundation level price hikes, in contrast with present market positioning of 50bps, probably supporting the yen.

However the path to BOJ price hikes is not easy. The central financial institution hiked charges in December and might not be eager to hike once more at a time when “US coverage remains to be unknown and might be probably harmful for Japan,” UBS mentioned, flagging the danger of U.S. tariffs.

UBS is forecasting at 150 by the top of 2025, down from present ranges round 158.

CAD: Greatest CAD buying and selling alternatives shall be on the cross

The Canadian greenback is more likely to face headwinds from US tariffs and political uncertainty forward of the upcoming election, however remains to be more likely to outperform some friends, notably sterling, UBS mentioned.

Shorting or promoting place is enticing, with the financial institution suggesting a 1-year GBPCAD 1.73 put 1.60 threat knock-out possibility.

Whereas CAD faces near-term dangers from potential U.S. tariffs, it ought to finally profit from its shut relationship with the U.S. and extra constructive sentiment in the direction of Canadian belongings following this 12 months’s Canadian elections, UBS added.

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