Investing.com – Some post-election moves in the US dollar have already partially reversed, and UBS expects more consolidation at these levels than an even higher dollar in the near term.
At 06:15 ET (11:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.4% higher at 106.612, bouncing to a one-week low after falling earlier in the session.
The index had risen to a one-year high last week in the wake of Donald Trump’s victory in the presidential election.
Many market participants believe that Trump 2.0 represents not just a repeat of the dollar-supportive US policies of 2018-2019, but a much broader paradigm shift, analysts at the Swiss bank said in a Nov. 20 note.
Specifically, the idea that tariffs could play a more substantial role in trade and fiscal policy should be consistent with the appreciation of the USD through reduced imports, but also with an incentive for US trading partners to weaken their currencies.
“We have no strong reason to object to these views and have in fact argued that the core message of the second Trump administration involves a higher USD in 2025 and 2026,” UBS said.
The bank’s reservations are more tactical in nature.
First, ongoing outbreaks require a steady stream of positive headlines, and these could be smaller at least before Trump’s inauguration, as the recent infighting over the nomination of the Treasury Secretary has highlighted.
Second, real interest rate differentials are less supportive of the dollar than nominal interest rates, as breakevens have played a major role in pushing up US nominal interest rates.
Third, the market appears to have reached a limit for pricing in Fed cuts over the next 12 to 15 months and could move in the opposite direction on indications of weakness in US data.
“For these reasons, we still see consolidation rather than an even higher USD in the near term, with the year ending at 1.07 in our view,” UBS said.
