(UBS)
The DXY index is on track for its seventh straight weekly gain—and is up around 6% since the start of October. The EURUSD has fallen close to 1.05 for the first time in a year, while the USDJPY is back near 156—a level that officials are likely uncomfortable with.
Our view: While Donald Trump's policy agenda is still subject to considerable uncertainty, his short-term positive impact on the dollar looks more assured. New tax cuts would make US investments attractive to foreigners. The threat of tariffs and higher yields should both boost the appeal of the dollar.
We now anticipate the USD is likely to stay in overvalued territory for some time, and have adjusted our broader currency forecasts to reflect this. However, we think there are limits to dollar strength, and the positivity already priced into the dollar reflects only one side of the story. It’s not yet clear how President-elect Trump’s policies will be funded over the medium term. A further rise in US bond yields could weigh on the economy through mortgages and debt services. We must also remember the President-elect’s stated desire for both lower interest rates and a weaker dollar.
We raise our USDJPY forecasts to 155, 152, 150, and 147 for December 2024, March 2025, June 2025, and September 2025, respectively (from 147, 143, 140, and 138 previously). We expect the EURUSD to remain in its recent trading range of 1.05-1.12 over our forecast horizon and see merit in yield-generating strategies as a means of diversifying income sources.
For more, see the US Daily - Building a resilient portfolio as red sweep reshapes markets, 14 November 2024.
