Growth-friendly currencies have struggled recently, but upcoming economic data and central bank meetings are expected to curb further USD gains, UBS noted, while providing insight into recent moves in the foreign exchange market.
UBS’s comment came after the US dollar (DXY index) recovered after failing to break the 100 mark.
The analysts noted that the US dollar’s decline had been paused this week due to several factors, including rising conflict in the Middle East, the upcoming US presidential election and weaker economic indicators from Europe. These elements have provided support to the USD, suggesting that the recent weakness may be exaggerated.
UBS expects the market to closely monitor European economic data such as retail sales, German manufacturing orders and industrial production in the coming week. Particular attention will be paid to UK economic indicators, including industrial production, trade and employment figures, as well as possible guidance from the Bank of England on faster interest rate cuts.
In the United States, the focus will be on the labor market report that will be released on Friday and the September inflation figures. UBS suggests that if other major economies are any indication, the risk to US inflation rates could be on the low side, which would reinforce expectations for a US rate cut and potentially put pressure on the dollar.
In addition, UBS commented on the expected actions of other central banks. The Reserve Bank of New Zealand (RBNZ) is expected to cut its policy rate by 50 basis points in response to recent business surveys pointing to potential economic weakness. This move has already been reflected in market prices, but the New Zealand dollar (NZD) is expected to perform poorly due to the expected continuation of weak domestic data. UBS therefore prefers the Australian dollar (AUD) over the NZD.
Finally, UBS noted that while emerging market currencies had a weak start to October, they had previously recovered since late July. The Mexican peso was spotlighted for its strength following market-friendly comments from newly sworn-in President Claudia Sheinbaum. In contrast, the Israeli is under pressure amid the escalating conflict in the Middle East, with the Bank of Israel expected to maintain its policy rate at the upcoming meeting.
This article was produced with the support of AI and reviewed by an editor. For more information see our General Terms and Conditions.
