Investing.com – The US Dollar has been in high demand lately, climbing close to its highest levels of the year. However, according to UBS, this rally is unlikely to continue in the coming months.
At 08:05 ET (12:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading at 105.597, up about 1% in June, and only marginally below its all-time high of 2024 from 106.52 in June. April.
This strength reflects a combination of factors, including the fact that the Federal Reserve has been keeping interest rates high for longer, while other major central banks — including the , , and — have already started cutting spending, UBS analysts said in a June 27 note . .
Because investors often view the US currency as a safe haven, it has also likely benefited from the political uncertainty surrounding the French parliamentary elections – with the first round of voting taking place this Sunday.
Notably, the US dollar has risen about 14% against the yen since the start of the year, breaking above the 160 level this week and pushing the Japanese currency to its weakest level since 1986.
The euro, the largest component of the DXY index, is also down more than 3% against the dollar in 2024.
Further upward pressure on the US dollar remains possible in the short term.
If former US President Donald Trump is more likely to win the election after the first televised debate with President Joe Biden later today, this could boost the US currency – given the potential for looser fiscal policy if the Republican Party both White House if the White House wins. and control of Congress.
The outcome of Sunday’s French elections could also weaken the euro if there is a strong showing for right-wing or left-wing parties.
However, the US dollar’s recent strength should fade in coming months, the bank added, as a slowdown in US growth allows interest rate cuts to begin in September.
The dollar, which we believe is richly valued, should also face downward pressure as markets begin to price in a deeper cycle of Fed rate cuts.
Finally, fears about the size of the US budget deficit could prove to be a new headwind in the longer term, UBS said.
