Greenback’s flying begin to the yr to reverse course in H2, UBS says

Investing.com — The greenback has began the yr on the entrance foot, flirting with multi-decade highs, however strategists from UBS are backing a reversal within the second half of the yr because the dollar is now in overvalued territory.

“Whereas the USD has strengthened additional in 2025, we nonetheless consider that 2025 will probably be a narrative of two halves—USD power in 1H, and a partial or full reversal in 2H,” UBS strategists acknowledged of their newest market outlook.

The decision for a softer greenback within the again half of the yr comes as the US Greenback Index index has appreciated by roughly 9% since late September, lately buying and selling above the 110 stage and taking the dollar to frothy ranges. 

“The USD presently buying and selling near multi-decade highs in strongly overvalued territory and elevated investor positioning (with the CFTC futures displaying the best stage of greenback internet size since 2015) underpin this narrative,” the strategists mentioned. 

The greenback’s power has been pushed by better-than-expected U.S. financial information, together with nonfarm payrolls and the companies sector buying managers’ index, which have led to decrease expectations for Federal Reserve charge cuts this yr.

Whereas markets proceed to reprice Fed charge cuts, with consensus now for only one charge reduce this yr, UBS mentioned it continues to anticipate two cuts. “We nonetheless anticipate the Fed to chop charges twice this yr, for a complete of 50bps of easing, however don’t anticipate these reductions till 2Q and 3Q,” the strategists mentioned.

For the close to time period, nevertheless, U.S. exceptionalism is prone to proceed to assist the greenback, they added, financial information to remain sturdy. 

With only a beneath every week to go till President-elect Donald Trump’s inauguration, UBS flagged the potential of latest tariffs offering the greenback with a raise. “Tariff dangers don’t seem like totally priced in,” the strategists famous.