The near-term risks are skewed towards additional USD strength – UBS

From a recent low in mid-July, the US Dollar has appreciated by around 6% against the Euro, with the Dollar Index (DXY), a basket of six major currencies, rising by a similar amount. Economists at UBS analyze Greenback’s outlook.

Greenback will stay well bid until year-end

Until the year-end, we now expect the US Dollar to trade sideways against most currencies.

We now forecast EUR/USD, USD/CHF, and GBP/USD to trade at 1.06 (previously 1.12), 0.92 (0.87), and 1.20 (1.29), respectively, by end-December. And in Asia-Pacific, we see USD/JPY and AUD/USD trading at 145 (previously 142) and 0.65 (0.66), respectively, by end-December.

But looking further ahead, relative growth dynamics are likely to run against the US Dollar in 1H24. The US economy has yet to bottom, while Europe and China already have.

We expect US Dollar strength to peak next year and the Greenback to give up some gains. We reflect this in EUR/USD, USD/CHF, and GBP/USD with our September 2024 forecasts at 1.12 (previously 1.16), 0.87 (0.84), and 1.30 (1.36), respectively. This view requires Europe to stay out of recession and China to stabilize.