Investing.com — The dollar recently posted new record highs against its rivals and is likely to remain strong after the Federal Reserve took a more aggressive stance at its recent December meeting, UBS analysts said in a recent note.
“While we still expect the dollar to decline, given these factors we now see less weakness in 2025 and are adjusting our forecasts slightly,” UBS analysts said in a recent note.
The less bearish view on the USD comes in the wake of the dollar setting new record highs in major exchange rates over the past year and expectations for fewer interest rate cuts in the US.
“The USD has been driven lately by the prospects of fewer Fed rate cuts and rate risks,” the analysts said.
The euro has been particularly affected by the strong dollar, but is expected to trade around $1.05 against the dollar in the first half of 2025, analysts predict.
But a significant decline towards parity for the economy cannot be ruled out, “due to real tariff threats or further divergence in the macroeconomic backdrop between the US and Europe,” the analysts added.
Still, any move towards parity should be short-lived, the analysts said, amid expectations that the economic environment in Europe will improve in the second half of the year, narrowing the gap between European and US yields.
“The trajectory back to the mid-range or higher, 1.08 to 1.10, reflects the view that two-year yield spreads will still narrow to some extent and that better macro data from Europe will provide some underlying support bid for EURUSD in the second half of 25,” the analysts said.
