Investing.com – UBS has cut its long-term targets for the US dollar, hoping to blunt the currency’s recovery in early September.
At 08:45 ET (12:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 101.655, after rising to a two-week high of 101.79 at the beginning of the month. week.
rose 0.1% to 1.1048 after the pair fell to a two-week low earlier this week.
The sharp drop on Wall Street on Tuesday did little to allay market fears of negative seasonal patterns for the month of September over the past decade, analysts at the Swiss bank said in a September 4 note.
And with US August employment data due on Friday, it brings back memories of the markets’ painful reaction to weak July employment data in early August and the subsequent meltdown that rose to 70.
This move also matched a classic surge in FX carry and beta trades, with the JPY and CHF outperforming while the AUD underperformed the USD despite offering less carry at this time.
“What is different now, however, is that even though the VIX had fallen all the way back to 15 by the end of August, the currency’s implied volatility remained relatively high in classic carry pairs and signs of new position building were limited,” it added. UBS added.
“We suspect this means any gains in currency rates will be more limited this time around, even as weak US data again leads to much weaker equities and lower US interest rates.”
While the USD could also see a recovery in the near term due to its own positive seasonal patterns following a sharp sell-off in July and August, “we expect this to be corrective in nature rather than a persistent trend in the G10 space and more likely is that this is a result of US numbers exceeding expectations, rather than “risking” a miss.
As a result, the Swiss bank takes the opportunity to further lower its dollar outlook for late 2024 and 2025, recommending taking advantage of the higher correction we expect this month to position for more structural weakness later of the dollar.
“Specifically, we now see EURUSD at 1.12 by year-end and 1.15 by end-2025, with a decline in ‘American exceptionalism’ the main driver of the revision, rather than any renewed enthusiasm for the EUR,” said UBS.
“In fact, in most other crosses we remain bearish on the EUR. We argue that political risk is unlikely to be key factors in both the US and Europe until there is much more transparency and the word is left to traditional macroeconomics.”
