Investing.com — The dollar has been boosted by the return of the “Trump trade” as Republican presidential candidate Donald Trump’s chances of returning to the White House appear to be rising, but UBS believes stronger rallies need to be sold as Trump is not exactly positive for the dollar.
“We continue to expect a dollar rebound in the event of a Trump victory. However, we do not view Trump as outright positive for the USD over the medium term and therefore recommend stronger dollar selling rallies,” UBS said in a note on Friday.
The call comes as the US election, just over two weeks away, remains too close to call, although Trump has gained ground in recent weeks and now has a narrow lead over Vice President Kamala Harris in some polls.
The dollar’s recent rally has been partly attributed to the market price estimating a higher probability of a Trump victory, with the dollar seen as one of the so-called Trump trades that have gained popularity.
The boost to the dollar from the ‘Trump trades’ could be transitory, says UBS, which forecasts the euro-dollar to move towards 1.16 in 2025, suggesting the dollar is only a has limited upside potential.
In the broader foreign exchange market, some emerging market currencies, which have struggled against the dollar in recent weeks, are likely to remain in favor.
“We think the South African rand, backed by a more reform-minded government, and the Mexican peso, which is already pricing in a hefty risk premium for political unrest, are good options for collecting carries in the medium term,” UBS said.
