UBS Predicts Weakening USD as Fed Prepares for Easing Cycle - Expert Analysis
In a recent report, UBS has forecasted that the U.S. economy's slowdown could result in a weaker U.S. dollar as the Federal Reserve looks to ease monetary policy. This prediction has significant implications for investors, with the exchange rate potentially climbing above 1.15 by 2025 after entering the 1.10-1.15 range.
The brokerage firm advises investors to consider reducing USD exposure during any dips below 1.10, signaling a strategic move to align with anticipated currency movements. UBS expects the Fed to kick off its easing cycle in September, with potentially more aggressive rate cuts compared to other central banks globally.
The rationale behind this shift lies in various factors, including inflation nearing targets, a softening labor market, and growth returning to sustainable levels. The U.S. economic outperformance in recent years, which justified the Fed's higher interest rates, is expected to give way to a period of USD weakening.
On the other hand, Europe's growth remains sluggish, but the European Central Bank (ECB) is unlikely to deviate from its current trajectory. UBS predicts the ECB will gradually reduce rates by 25 basis points each quarter until mid-2025, presenting a contrast to the Fed's projected cuts. Additionally, Europe's trade balance surplus and recovery from temporary deficits are seen as supporting factors for the euro.
In conclusion, UBS's insights highlight the evolving landscape of global currency markets and the potential impact on investors' portfolios. By staying informed and adapting strategies in response to these trends, individuals can better position themselves to navigate the shifting economic environment effectively.