Breaking News: UBS Downgrades Long-Term US Dollar Targets, Predicts Rebound in September
In a recent note dated Sept. 4, analysts at UBS have downgraded their long-term US dollar targets and are expecting a rebound early in September. The Dollar Index, which tracks the greenback against a basket of six other currencies, is currently trading 0.1% lower to 101.655 after reaching a two-week high of 101.79 at the beginning of the week.
The recent sharp drop on Wall Street has raised concerns about negative seasonal patterns in September over the past decade. Additionally, with US August employment data scheduled for release on Friday, investors are wary of a repeat of the market reaction to weak July employment data at the start of August.
UBS believes that any potential blow-up in the foreign exchange markets will be limited this time around, despite high FX implied volatility in classic carry pairs. They anticipate a near-term rebound in the USD due to positive seasonal patterns but expect it to be corrective in nature rather than persistent.
As a result, UBS is further downgrading its USD outlook into end-2024 and 2025. They recommend taking advantage of the expected correction higher this month to position for more structural USD weakness later on. Specifically, UBS predicts EURUSD at 1.12 by year-end and 1.15 by end-2025, attributing the revision to a decline in 'US exceptionalism'.
In conclusion, investors should be prepared for a potential rebound in the US dollar in September, followed by a more structural weakness in the currency in the long term. This analysis suggests that strategic positioning in the forex market may be necessary to navigate the evolving landscape of global currencies and economic trends.