UBS revised its forecast for the exchange rate, citing a lack of strength in the US dollar despite expectations that certain political events would strengthen it. Contrary to these expectations, gold prices and bitcoin have risen before the dollar.
UBS’s revision reflects a complex interplay of factors, including recent soft US economic data and a decline in government bond yields, which have not supported the dollar as expected.
The bank revised its forecasts for the EUR/USD pair for the third quarter and the end of 2024 to 1.08, up from the previous forecast of 1.05. The change comes amid market speculation that the Federal Reserve could consider a 50 basis point rate cut in 2024, with discussions about rate cuts possibly starting as early as September.
These expectations have become a more dominant influence on currency valuations than the Trump administration’s potential USD-related policies should he win the upcoming elections.
UBS’s revised forecast is in line with its new view of the Federal Reserve’s monetary policy, which now includes the possibility of two rate cuts in 2024. Meanwhile, the European Central Bank (ECB) has maintained a cautious stance on future interest rate cuts.
While these developments weaken the case for a new low for the EUR in 2024, UBS still expects a modest decline in the value of the euro given the potential for economic growth indicators to soften in major economies such as France.
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