UBS revised its exchange rate forecasts, citing a lack of strength in the US dollar despite expectations that some political events would support it. Contrary to these expectations, gold and bitcoin prices rose, but not the US dollar.
UBS’s adjustment reflects a complex interplay of factors, including recent weak U.S. economic data and lower Treasury yields, that have not supported the dollar as expected.
The bank revised its end-Q3 and end-2024 forecasts for the EUR/USD pair to 1.08, up from a previous forecast of 1.05. The change comes amid market speculation that the Federal Reserve could consider cutting interest rates by 50 basis points in 2024, with rate cut discussions set to begin as early as September.
These expectations have become a more dominant influence on currency valuations than the potential policies regarding the US dollar by the Trump administration should he win the upcoming elections.
UBS’s revised forecasts are in line with its new outlook for the Federal Reserve’s monetary policy, which now includes the possibility of two rate cuts in 2024. Meanwhile, the European Central Bank has maintained a cautious stance on future rate cuts.
While these developments weaken the chances of the euro hitting new lows in 2024, UBS still expects a modest depreciation in the value of the euro, taking into account the possibility of weak economic growth indicators in large economies such as France.
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