Investing.com – The US Dollar has been falling since the low point of the end of September 2024, and UBS thinks that this force will probably last in the first half of the new year in the short term, with room to go through.
At 06:15 et (11:15 GMT), the Dollar Index, which follows the dollar compared to a basket of six other currencies, traded 0.5% lower, but has risen almost 4% in the course of the past year.
Better American figures (non-agricultural wage lists and purchasing managers index)-and therefore the rise in American interest-have caused broad support for the dollar, according to analysts from UBS in a memorandum.
The economic news elsewhere was rather mixed, with the growth prospects for Europe very moderate. The accelerating growth in China indicates that there is also growth outside the US. But now that the American tariff risks are in great shape, it is unlikely that a stronger activity in China will change the investor sentiment and the Rally of the USD will slow down.
In the short term, there appears to be a limited headwind that stops the USD, the Swiss bank added.
“American exceptionism seems to apply again, with the US economic figures being likely to remain strong in the short term and the risk that US inflation will rise again. The youngest growth and inflation dynamics raised the American growth and inflation expectations to a higher level, so that the FED could remain aside in 2025. ”
In any case, in the short term, the markets will probably think that way, while other important central banks will probably reduce interest rates.
The potential for differences in monetary policy is a powerful engine that leads to trend currency markets and the possibility that the exchange rates pass by.
The American rates are also in danger of growing up and weigh on sentiment. The care about rates is that these inflation will have. Because the inflation sheets are still fresh in the memory of investors, they dominate the market stories.
“That said, we think that a policy interest of 4 to 4.5% remains restrictive in the US and is a headwind for economic growth and inflation. It is unlikely that this will change something if there is no hard evidence that productivity in the US is increasing, which could happen in view of the developments in the field of AI and the associated investments, “the Swiss bank added.
It seems that the market-unfriendly parts of the new Trump agenda (for example rates, trade tensions, immigration) are easier to implement and will probably take place than market-friendly parts (for example, tax reductions, deregulation).
“We think that a negative impact on American growth is not at all in the Forex market, which cannot be said for the rest of the world, in particular Europe,” said UBS.
“That is why we still think that 2025 could be a story of two halves: strength in the first half, and a partial or complete reversal in the second half. The fact that the USD is traded in a highly overvalued area at the highest level in decades and that the positioning of investors (such as speculative accounts on the Termarkt) is high, supports this story. ”
