Investing.com — The dollar bulls are unlikely to collapse anytime soon, as higher Federal Reserve interest rates, relative to other central banks, and pro-growth policies, including taxes, are likely to keep the dollar on top remains strong against its G-10 peers including the euro, the Canadian dollar and the yen.
“[T]The most likely path is still a strong USD, as part of the natural consequence of the policies the US is following to generate excess demand, high interest rates and also a stronger currency, while other countries are cutting rates and fear to reduce inflation. versus emerging markets,” UBS said in a recent note.
EUR: to end the year below par against the USD: TThree bearish factors are weighing on the euro
1. The convergence of interest rates with other low-yielding currencies, such as the Japanese yen and the Swiss franc, is expected to increase the attractiveness of the euro as a financing currency.
2. The political outlook for the Eurozone remains unhelpful, with potential risks from the German elections.
3. Concerns about US tariffs threaten the euro area economy.
UBS predicts that the year 2025 will end at 0.990.
JPY: Follows signals from the BoJ in hopes that rate hikes will turn the tide
The outlook for the yen is linked to expectations of policy changes by the Bank of Japan. UBS expects the BOJ to raise rates by 75 basis points, compared to the current market positioning of 50 basis points, potentially supporting the yen.
But the path to rate hikes by the BOJ is not easy. The central bank raised rates in December and may not be eager to raise again at a time when “US policy is still unknown and could be potentially dangerous for Japan,” UBS said, highlighting the risk of US rates .
UBS predicts a rise of 150 by the end of 2025, down from current levels around 158.
CAD: The greatest CAD trading opportunities are on the cross
While CAD faces near-term risks from potential US tariffs, it should ultimately benefit from its close relationship with the US and more positive sentiment towards Canadian assets following this year’s Canadian elections, UBS added .
