UBS on Wednesday changed its currency forecast for the year 2024, indicating a stronger outlook for the US dollar against several major currencies. The bank revised its end-2024 forecast for the pair from 1.1200 to 1.0500 and changed its end-second-quarter target to 1.0500 from 1.0900, with the bottom of the second-quarter trading range now fixed at 1.0450 compared to the previous 1.0600.
The EUR/USD forecast change aligns with UBS’s tactical trades, which have recently benefited from an increase in longer-dated implied volatility and a breakout of rate differentials in favor of the USD. The bank’s economists moderated their view on the Federal Reserve’s actions, which led to the updated projections. UBS predicts that as the European Central Bank (ECB) begins cutting rates while the Fed delays, the euro will come under further downward pressure.
Additionally, UBS changed its end-2024 target for the USDJPY to 160.00 from 140.00. Despite Japan’s lack of intervention to slow the yen’s depreciation, UBS believes any intervention is unlikely to have a lasting impact on the yen squeeze unless US yields fall or the Bank of Japan (BOJ) tightens politics more aggressively. The end-of-Q2 target for USD/JPY remains at 155.00, recognizing the currency pair’s recent strong gains and the possibility of intervention-driven retracements.
UBS’s forecast adjustments are not primarily due to the recent surge in geopolitical tensions, which have at times pushed the USD above expected levels in the near term. The bank speculates that an easing of geopolitical tensions could allow the USD to retreat temporarily before its strengthening trend continues. Regarding USD/JPY, UBS maintains a stable view for the end of the second quarter, suggesting a lower probability that risk-off conditions will cause significant declines in US rates.
Insights from InvestingPro
In light of UBS’s revised FX forecast, recent US dollar (DXY) data reflects a trend that could support the bank’s outlook. Over the past week, the dollar has rallied modestly with a total return of 0.9%. This short-term gain has extended into the past month, with the dollar achieving a total return of 2.62%, indicating a strengthening position in the currency market.
Looking at a longer time horizon, the dollar’s year-to-year (YTD) performance has been noteworthy, with a total return of 4.7%. This is in line with UBS’s forecast of continued dollar strength throughout 2024. While the six-month performance shows a slight decline of 0.1%, the one-year total price return of 3.95% and the closing price of 106.26 USD suggests a long-term stability of the dollar.
InvestingPro tips highlight the importance of considering both short-term fluctuations and long-term trends when evaluating currency forecasts. For readers looking to delve deeper into currency analysis, InvestingPro offers additional insights. There are 15 more InvestingPro tips that could further inform your currency trading strategies. To access it, use the coupon code PRONEWS24 to get an additional 10% discount on an annual or two-year Pro and Pro+ subscription.
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