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Investing.com — The greenback bulls aren’t more likely to collapse anytime quickly as larger Federal Reserve rates of interest associated to different central banks and pro-growth insurance policies together with tax will doubtless make sure the dollar continues come on high in opposition to its G-10 friends together with the euro, Canadian greenback, and the yen.
“[T]he almost certainly path continues to be USD power as a part of the pure consequence of the US following insurance policies that work to generate extra demand, excessive rates of interest and in addition a stronger forex, similtaneously different international locations are reducing rates of interest and downgrading inflation fears relative to progress ones,” UBS mentioned in a current notice.
EUR: to finish yr under parity in opposition to USD: Three bearish elements weighing on euro
1. Rate of interest convergence with different low-yielding currencies just like the Japanese yen and Swiss franc is anticipated to extend the euro’s attraction as a funding forex.
2. The political outlook for the eurozone stays unhelpful, with potential dangers stemming from German elections.
3.Issues about U.S. tariffs pose a risk to the euro space economic system.
UBS forecasts the EUR/USD to finish 2025 at 0.990.
JPY: to take cues from BoJ amid hopes for price hikes to show the tide
The yen’s outlook is tied to expectations of Financial institution of Japan coverage shifts. UBS expects the BOJ will ship 75 foundation level price hikes, in contrast with present market positioning of 50bps, doubtlessly supporting the yen.
However the path to BOJ price hikes is not easy. The central financial institution hiked charges in December and might not be eager to hike once more at a time when “US coverage continues to be unknown and could possibly be doubtlessly harmful for Japan,” UBS mentioned, flagging the danger of U.S. tariffs.
UBS is forecasting USD/JPY at 150 by the top of 2025, down from present ranges round 158.
CAD: Greatest CAD buying and selling alternatives will likely be on the cross
The Canadian greenback is more likely to face headwinds from US tariffs and political uncertainty forward of the upcoming election, however loonie continues to be more likely to outperform some friends, significantly sterling, UBS mentioned.
Shorting or promoting GBP/CAD place is engaging, with the financial institution suggesting a 1-year GBPCAD 1.73 put 1.60 danger knock-out choice.
Whereas CAD faces near-term dangers from potential U.S. tariffs, it ought to in the end profit from its shut relationship with the U.S. and extra constructive sentiment in the direction of Canadian property following this yr’s Canadian elections, UBS added.
