UBS sees limited gains in USD amid global events By Investing.com

Pro-growth currencies have struggled recently, but upcoming economic data and central bank meetings are expected to dampen the USD’s further gains, UBS noted while providing insights into recent forex market movements.

The UBS remark came after the US dollar (DXY index) bounced back after failing to break the 100 mark.

Analysts noted that the decline in the US dollar ended this week due to several factors, including the escalation of conflict in the Middle East, the upcoming US presidential election and weaker economic indicators in Europe. These elements supported the USD, suggesting that its recent weakness may have been exaggerated.

UBS expects the market to closely monitor European economic data such as retail sales, German manufacturing orders and industrial production next week. Particular attention will be paid to UK economic indicators, including industrial production, trade and employment figures, as well as potential indications from the Bank of England of faster interest rate cuts.

In the United States, the focus will be on Friday’s labor market report and September’s inflation numbers. UBS suggests that if other major economies are any indication, risk to US inflation data could be lower, raising expectations for a US interest rate cut and putting pressure on the dollar.

In addition, UBS commented on the expected actions of other central banks. The Reserve Bank of New Zealand (RBNZ) is expected to cut its policy rate by 50 basis points in response to recent business surveys pointing to potential economic easing. This move is already factored into market prices, but the New Zealand dollar (NZD) is expected to underperform due to the anticipated continuation of weak domestic data. UBS therefore prefers the Australian dollar (AUD) to the NZD.

Finally, UBS noted that while emerging market currencies got off to a weak start in October, they had previously recovered since late July. The Mexican peso was highlighted for its strength following market-friendly comments from newly sworn-in president Claudia Sheinbaum. Instead, the Israeli is facing pressure amid escalating conflict in the Middle East, with the Bank of Israel expected to hold its policy rate at its next meeting.

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