On Tuesday, UBS forecast a volatile period for the currency pair, with expectations of a gradual rise above 1.10 and towards 1.16 by 2025.
“We believe the US elections are a short-term risk. Nevertheless, we still think the EUR/USD should rise to 1.16 in 2025. On the investment front, we recommend selling periods of USD strength, especially in the event of a Trump victory,” the company said. in a note.
After weakness in August and September, the US dollar made a comeback in October, UBS points out. This rebound was influenced by a stronger than expected US labor market report and robust US PMI data. Conversely, the European Central Bank (ECB) has cut interest rates in response to lower-than-expected European inflation, as evidenced by the decision at last week’s meeting.
Looking ahead, UBS expects a bumpy road ahead for the currency pair, with upcoming US labor market reports being a key determinant of the Federal Reserve’s future actions. However, interpretation of these reports may be complicated by the recent Hurricane Milton, the analysts said. Furthermore, the upcoming US elections could cause further volatility in the market, especially with the possibility of an unclear outcome.
Despite the potential for initial dollar strength following a Trump election victory, UBS does not view a second Trump administration as unequivocally positive for the USD. The company suggests that tariffs could hurt US GDP and consumers more than the rest of the world, and advises investors to take advantage of such periods of USD strength.
In Europe, UBS maintains a positive outlook, anticipating a growth recovery leading to 2025. They also believe that the current pessimistic sentiment means that any positive economic data from Europe could have a significant impact on the euro. The company remains consistent with their forecast for EUR/USD to rise above 1.10 in the coming weeks, maintaining a target of 1.16 for later in 2025.
For investors, UBS sees the recent dip below 1.10 as an opportunity to reduce exposure to the USD. The company identifies the next support level around 1.08, with resistance likely around 1.12 and 1.15. While UBS acknowledges the risks, including those related to the US election, it suggests there is a greater chance the exchange rate will rise rather than fall.
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