Sell further dollar strength
While the US dollar may stay well bid in the near term, we advocate selling it on further strength.
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
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.
EUR: Low expectations
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
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
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
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
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.
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Disclaimers
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.