UBS Cuts US Dollar Targets; recommends removing any power through Investing.com

Investing.com – UBS downgraded its long-term targets on the U.S. dollar, seeking to dampen the currency’s early September rally.

At 08:45 ET (12:45 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.1 percent lower at 101.655, after climbing to a high of two weeks of 101.79 at the beginning of the month. week.

rose 0.1% to 1.1048 after the pair earlier in the week fell to a two-week low.

Tuesday’s sharp decline on Wall Street did not ease market fears of negative seasonal patterns for September over the past decade, analysts at the Swiss bank said in a Sept. 4 note.

And with August U.S. employment data due on Friday, it brought back memories of markets’ painful reaction to weak July employment data in early August and the subsequent meltdown that registered an increase towards 70.

This move also corresponded with a classic burst in forex carry trades and beta, with JPY and CHF outperforming, while agents such as AUD underperformed the USD despite offering less carry at the moment.

“What is different now is that while the VIX has fallen to 15 by the end of August, FX implied volatility has remained relatively high in classic carry pairs and signs of further position accumulation have been limited,” he UBS added.

“We suspect this means any currency blowout will be more limited this time around, even if weak US data will once again lead to much weaker equities and lower US rates.”

As such, while the USD could also see a near-term rebound due to its own positive seasonal patterns after a sharp sell-off in July and August, “we would expect it to be corrective in nature rather than persistent in the G10 space and more likely a function of the US data beating expectations rather than the “risk” of a miss.

As a result, the Swiss bank takes the opportunity to further reduce its USD outlook in late 2024 and 2025 and recommends taking advantage of the larger correction we expect this month to position itself for more structural weakness in USD.

“Specifically, we now see EURUSD at 1.12 by the end of the year and 1.15 by the end of 2025, with a decline in ‘American exceptionalism’ the main driver of the revision rather than any renewed enthusiasm for the euro,” said UBS.

“We actually remain euro bearish in most other crosses. We argue that political risks in both the US and Europe are unlikely to be key factors until there is much more transparency, leaving the floor to traditional macro.”