Investing.com – The US dollar has gained more ground as the US presidential election approaches, UBS noted, with the market seeing increasing chances of a win for Republican candidate Donald Trump.
A new positive for the USD over the past week has been media reports of slightly better prospects for Donald Trump in the latest polls, as outcomes that allow for policies such as more aggressive tariffs are seen as more positive for the USD.
“Higher odds of a Trump presidency are likely to be associated with a stronger USD in the near term,” UBS analysts said in an Oct. 16 note.
Where does this leave us with our USD views?
Our expected ranges between September and December 2024 took into account the possibility of a substantial recovery in the USD between now and the end of the year, even if our forecasts see a modestly lower USD against the year end current levels.
Last week we entered a long call reverse knockout in light of our year-end forecast, but we are not yet prepared to execute a similar trade for and .
The spot is still far enough away from our extremes, and the high implied volatility in the JPY and negative carry make long JPY positions unattractive this close to the US elections.
As for this week’s ECB meeting, the market is confident that there will be another 25 basis point rate cut, and we have no good reason to disagree.
Market expectations for any kind of surprise are very muted, and risk reversals bidding on the EUR again indicate a market already primed for the risk of EUR weakness.
With market prices in line with our economists’ expectations for final interest rates, we view the EUR/USD as more exposed to near-term US developments, which makes us reluctant to blame recent weakness on ECB grounds alone. let it fade away.
At 06:30 ET (10:30 GMT), EUR/USD rose 0.1% to 1.0894, USD/JPY rose 0.1% to 149.34 and AUD/USD fell 0.2% to 0 ,6685.
