Investing.com – Aggressive moves in the Japanese yen this week, largely against the US dollar, have sparked talk of official intervention. While this could be seen as a sign of extreme dollar strength, UBS pointed to the yen’s weakness and said the dollar offers more upside potential on a broader scale.
“Last week was a big one for,” UBS analysts said in a May 1 note, as the Bank of Japan struck a dovish tone at its meeting, pushing USD/JPY above 160 on Monday, “and the somewhat the markets believe was currency intervention.”
“What we see as extreme weakness in the JPY has in some cases combined with excessive strength in the USD. We disagree with that framework and think the USD has more broader upside against the G10, even if it’s hard to call it ‘cheap’,” UBS added.
The bank noted that there is concerted action in the foreign exchange markets, similar to the Plaza and Louvre agreements of the 1980s.
“However, we note that the context was clearly different and see major obstacles to a similar round of concerted actions to weaken the dollar this time,” the bank said.
“As a starting point, it would require a major change in US posture, along with a worsening trade deficit that is starting to take on the hue of what we are already seeing in the budget deficit. That is missing for the time being.”
The broad US dollar is well below 2022 levels, UBS said, and is far from extreme.
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“It has even more to offer.”
UBS continues to hold long positions against the G10 currencies, the Canadian dollar and the Swiss franc.
Regarding the Swiss franc, “we note that there were some signs that the SNB [Swiss National Bank] We may have bought forex in March, which, if proven correct, would further support our long-standing bearish stance on the currency,” UBS added.
