Investing.com – The US dollar has been in demand this week as the dollar’s recent bout of weakness runs out. However, UBS warns against going long the dollar in the future.
At 08:05 ET (12:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 101.642, just below the previous session’s six-week high .
The index is up almost 1.5% this week, its strongest performance since April.
“The U.S. dollar has regained some lost ground this week due to several factors: geopolitical risks led to a flight to safety, some of the U.S. labor market data leading to the all-important nonfarm payroll and unemployment report is slightly better, and the Lower than expected European inflation has led markets to anticipate a 25 basis point rate cut from the European Central Bank in October,” UBS analysts said in an Oct. 3 note.
“If this substandard trend extends to the US, inflation could be very close to 2% in September.”
The Swiss bank says this is not the base case, but cannot rule it out.
With mixed labor market data clouding the picture in recent months, we think a sharper decline in inflation could open the door to another 50 bp rate cut by the Federal Reserve in November, according to UBS.
“We continue to see broad dollar weakness in the coming months and advise clients to use the current period of USD strength to reduce exposure,” the Swiss bank said. “With this view in mind, the DXY should eventually fall below 100.”
