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While the US dollar may stay well bid in the near term, we believe its valuation may now be overstretched. We recommend investors use periods of strength to reduce US dollar exposure through strategies such as hedging dollar assets, switching USD cash and fixed income exposure to other currencies, and through options.

USD: Strength has its limits 

The US dollar is entering a phase of uncertainty.

Tax cuts and deregulation may attract capital inflows to US markets, while immigration controls could tighten the labor market, potentially keeping interest rates elevated. Tariffs might strengthen the dollar.

But the dollar appears overvalued based on fair value metrics. We believe markets are overestimating the likelihood of prolonged high rates by the Fed. Additionally, worries about the US government debt trajectory or unpredictable foreign policy could undermine confidence in US Treasuries as a safe asset.

In the short term, new policy announcements might boost the dollar, but we anticipate it will approach 1.12 by (versus the euro) by end-2025.

We advise investors to use periods of further dollar strength to decrease exposure through hedging, shifting USD cash and fixed income to other currencies, and using options.

The line chart shows two lines, one for the DXY Index and one for the US 10-year Treasury yield, starting in October 2023. Until recently, the lines were correlated, but the DXY Index recently rose toward the 107 level which would imply a 10-year yield close to 5%. The chart suggests the US dollar is overstretched, and it should decline from its highs. The data is sourced from Bloomberg.

EUR: Low expectations

While we do not expect Eurozone growth to be robust, we do expect it to be somewhat stronger than it was in 2024. And with sentiment on Europe muted, we see scope for a positive surprise for the euro. In our base case, we also do not expect EUR government bond yields to decline much further from already low levels.

The euro may stay weak against the dollar in the short term, but we believe it will strengthen over the year, projecting an EURUSD rate of 1.12 by the end of 2025.

CHF: Rate cuts almost complete

After the Swiss National Bank cut interest rates three times in 2024, we expect one more 25-basis-point cut in December and another in March 2025. We do not expect Swiss bond yields to move lower from already low levels. On a relative basis, this should support the CHF as yield differentials become less negative for the Swiss currency. Safe-haven demand could remain a CHF-supportive factor if geopolitical tensions remain elevated.

We expect USDCHF to trade at 0.84 by end-2025.

GBP and AUD: Our preferred developed market carry currencies

In the UK and Australia, given the mix of inflation and economic growth dynamics, we think interest rates could be cut more slowly than in other regions, supporting positive total returns against peers.

We expect AUDUSD and GBPUSD to trade at 0.68 and 1.35, respectively, by December 2025.

JPY and CNY: Strength for yen, weakness for yuan

We anticipate the yen will strengthen in 2025, predicting USDJPY to hit 145 by year-end. First, we believe the yen is undervalued, not reflecting the current yield differences with the US dollar. Second, we expect the yield gap between the US and Japan to close in 2025, as the Federal Reserve reduces rates while the Bank of Japan raises them. Third, politically, President-elect Trump has criticized the yen’s weakness, and Japanese policymakers are also against it weakening beyond 160. A stronger yen could align with both US and Japanese interests.

We expect USDCNY to rise toward 7.5 by end-2025 as trade tariffs contribute to yuan weakness, even as the People’s Bank of China leans against CNY depreciation by stabilizing its daily USDCNY fixing rate.

Watch the video

Heading into 2025, the strong dollar has flexed its muscle again. But will the greenback accelerate or reverse? What clues can we draw from the first Trump presidency and its policies? UBS GWM CIO Head of Global FX & Commodity Dominic Schnider discusses our US dollar and currency outlook for 2025.

More investment ideas

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Position for lower rates

Top investment ideas

We expect central banks to cut interest rates further in the year ahead, reducing cash returns. We believe investment grade bonds offer attractive yields and expect mid-single-digit returns in US dollar terms. Diversified fixed income strategies and equity income strategies can also help investors sustain portfolio income.

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More to go in stocks

Top investment ideas

After strong years for equities in 2023 and 2024, we see further upside in 2025. We expect the S&P 500 to reach 6,600 by the end of 2025, around 10% higher than today’s levels. Tariffs could contribute to volatility in European and Chinese markets. But we see value in maintaining diversified exposure to Asia ex-Japan. In Europe, we like small- and mid-cap stocks and Swiss high-quality dividend payers.

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Transformational innovation opportunities

Top investment ideas

We expect significant and sustained profit growth in the transformational innovation opportunities of (1) Artificial intelligence and (2) Power and resources. By investing in these areas, we believe investors can earn strong long-term returns.

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Go for gold

Top investment ideas

We expect gold to build on its gains in 2025. Lower interest rates, persistent geopolitical risks, and strong dollar-diversification trends likely see investor and central bank buying continue. Outside gold, we also see long-term opportunities in copper and other transition metals, with demand increasing alongside higher investment into power generation, storage, and electric transport.

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Time for real estate

Top investment ideas

We think the outlook for global residential and commercial real estate investments is bright. With declining and constrained supply paired with rising demand, we see opportunities in sectors including logistics, data centers, and multifamily housing. Investors should focus on strategic acquisitions and diversification to capitalize on these favorable market dynamics.

Explore more of the Year Ahead 2025 report

In our base case, we expect sustained economic growth in the US, supported by healthy consumption, loose fiscal policy, and lower interest rates. Tariff threats are a headwind for Asia and Europe. If imposed, they could be partially offset by reactive stimulus measures in China. We expect growth in Europe to modestly improve as interest rates fall

A Trump presidency, coupled with Republican control of Congress, has the potential to reshape the global economic and geopolitical landscape. Key policy areas in focus for investors include tariffs, fiscal policy, deregulation, monetary policy, and international relations.

The 5Ds—debt, deglobalization, demographics, decarbonization, and digitalization—will be significant forces in the decade ahead that present opportunities and risks for investors. In aggregate, we expect them to lead to higher growth and periods of higher inflation over the long term.

Since the beginning of the decade, cash returns have struggled to surpass inflation and bonds have faced headwinds from rising interest rates. In contrast, equities have thrived, and private markets and commodities have offered robust returns. Looking ahead, we expect equities and private markets to continue to offer the highest potential returns.

Entering 2025, we believe stocks still have more to go, with our base case expectations of growth (despite tariffs), lower interest rates, and AI advancements. In fixed income, we think there is an opportunity to lock in yields for quality bonds. In currencies, while the dollar may remain strong in the short term, we believe it is looking stretched and advocate for selling it at further strength. We also like gold as a diversifier. Finally, we think the global real estate outlook looks promising.

Taking a step back, while these investment ideas present compelling cases for immediate action, developing a strategic plan that links goals with strategies can improve investors’ chance of success and help them stay focused on the bigger picture amid potential market turbulence.

We aim to provide the direction of travel for the economy and asset classes against a wide range of market outcomes ahead. The upside scenario would see lower taxes, deregulation, and trade deals adding to a positive market narrative built on solid growth and continued investment in artificial intelligence, while the risk scenario is that trade tariffs, excessive fiscal deficits, and geopolitical strife will contrib­ute to higher inflation, weaker growth, and market volatility.

Mockup of Year Ahead 2025 publication

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In this Year Ahead, we look at key developments that we believe will shape the next stage of these “Roaring 20s,” including US political change, falling interest rates, and transformational innovation in artificial intelligence and in power and resources.

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Disclaimers

Year Ahead 2025 – UBS House View
Chief Investment Office GWM  |  Investment Research

This report has been prepared by UBS AG, UBS AG London Branch, UBS Switzerland AG, UBS Financial Services Inc. (UBS FS), UBS AG Singapore Branch, UBS AG Hong Kong Branch, and UBS SuMi TRUST Wealth Management Co., Ltd.