Investing.com – Aggressive moves in the Japanese yen this week, largely against the US dollar, have sparked talk of official intervention. While this could be seen as a sign of extreme strength in the dollar, UBS pointed to the weakness of the yen, saying that the dollar offers more upside on a broader scale.
“Last week was an important week for,” analysts at UBS said in a note dated May 1, as the Bank of Japan stuck to a dovish tone at its meeting, sending USDJPY above 160 on Monday. “And the trigger is what the markets think is intervention in the currency market.”
“What we view as extreme weakness of the Japanese yen has in some cases been mixed with excessive strength of the US dollar. UBS added: “We disagree with this framework and believe the US dollar has greater upside against the broader G10, even if it can hardly be described as “cheap”.
The bank noted that there had been some talk about coordinated actions in foreign exchange markets of a nature similar to the Plaza and Louvre Agreements of the 1980s.
However, the bank said: “We find that the context was markedly different and see significant obstacles to a similar round of joint measures to weaken the US currency this time.”
A major shift in US attitudes will be necessary as a starting point, along with a deterioration in the trade deficit that begins to take on the character of what we have already seen in the fiscal deficit. This is absent at the present time.”
Overall, the US dollar is well below 2022 levels, and far from extreme, UBS said.
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“It still has more to offer.”
UBS continues to hold long positions against the G10 currencies, the Canadian dollar and the Swiss franc.
Regarding the Swiss franc, “we note that there is some evidence that the Swiss National Bank (Swiss National Bank) may have bought foreign exchange in March, which if proven true would reinforce the currency's long-term downward trend,” UBS added.