Investing.com – The US dollar has been in demand this week, with recent strength lost due to the weakness of the greenback. However, UBS warns against continuing to buy dollars in the future.
At 08:05 EDT (12:05 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, fell 0.1% to 101.642, off a six-week high in the previous session.
The index rose by about 1.5% during the week, its strongest performance since April.
“The US dollar regained some lost ground this week on the back of several factors: geopolitical risks led to a flight to safety, and some US labor market data that preceded the very important non-farm payrolls and unemployment report,” UBS analysts said in an October 3 note. Slightly better, lower-than-expected European inflation has led markets to expect a 25 basis point ECB cut in October.”
“If this downtrend extends to the US, the September inflation reading could approach 2%.”
The Swiss bank says this is not its base case, but it cannot rule it out.
With mixed labor market data clouding the picture in recent months, we believe a strong decline in inflation could open the door to another 50 basis point rate cut by the Fed in November, UBS said.
“We continue to see broad-based weakness in the dollar over the coming months and advise clients to take advantage of the current period of dollar strength to reduce exposure,” the Swiss bank said. “With this view in mind, the DXY should eventually fall below 100.”
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