Investing.com – The US dollar recently fell to its lowest level this year on increased expectations that the Federal Reserve will soon begin cutting interest rates, and UBS expects further losses.
At 05:55 ET (09:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 101.577 after falling last week for the first time since July 2023. low of 100.51 had fallen. .
“The dollar has broadly lost ground against both risk-on and risk-off currencies,” UBS analysts said in a note. in the coming months.”
The bank cites the combination of a high valuation, high deficits (especially on the budget side), slower economic growth with a higher unemployment rate, and therefore lower interest rates for the expected decline.
“We forecast a single-digit decline for the dollar over the next twelve months. Such a move would keep the USD in overvalued territory, but simply to a lesser extent,” UBS said.
The decline we expect is unlikely to be a straight line downwards, the bank added. While American exceptionalism may be on the verge of an end, macro data elsewhere have also been lackluster and are not expected to improve much in the near term.
“Forex markets are therefore primed for volatility, as we saw in August. We favor currencies where growth is likely to be more sustained, such as Australia or Britain, and where expectations for rate cuts are too advanced, such as Switzerland,” UBS said.
“We reiterate our message to hedge long exposure to the US dollar. Alternatively, investors can sell the upside potential of the USD for a return increase against the EUR, GBP, CHF or AUD.”
