Investing.com – Demand for the U.S. dollar has picked up recently, with the dollar hovering near its highest level this year. However, the rally is unlikely to continue in the coming months, according to UBS.
At 08:05 ET (12:05 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading at 105.597, up about 1% in June and only marginally below the 2024 high of 106.52 set in April.
This strength reflects a combination of factors, including the fact that the Fed has kept interest rates high for longer while other major central banks — including the Fed and the Fed — have already begun cutting rates, analysts at U.S. Bank said. B.S., in a memorandum dated June 27. .
Since investors often view the US currency as a safe haven, it is also likely to have benefited from the political uncertainty surrounding the French legislative elections – with the first round of voting taking place next Sunday.
It is worth noting that the US dollar has risen by about 14% against the yen since the beginning of the year, exceeding the 160 level this week to push the Japanese currency to its weakest level since 1986.
The euro, the largest component of the DXY, has also fallen more than 3% against the dollar in 2024.
The US dollar could still face further upward pressure in the near term.
If former US President Donald Trump is expected to win the election after the first televised debate with President Joe Biden later today, this could boost the value of the US currency – given the possibility of a more flexible fiscal policy if the Republican Party wins the White House and control of Congress.
The outcome of the French elections on Sunday could also weaken the euro if right- or left-leaning parties do well.
However, the bank added that the recent strength of the US dollar is expected to fade in the coming months, as slowing growth in the US allows the bank to start cutting interest rates in September.
The dollar, which we consider to be highly valued, should also face downward pressure as markets begin to price in a deeper rate-cutting cycle from the Fed.
UBS recently added that concerns about the size of the US fiscal deficit could act as another long-term headwind.