![]() ![]() UBS expects that the Japanese yen will remain under pressure this year and next. The US Dollar (USD) would also fail to strengthen if the Euro-zone decides on an early exit strategy from the very loose monetary policies, but UBS considers this is unlikely. “If the Fed allows inflation and inflation expectations to increase well beyond the current ranges, the new real exchange rate values would prevent nominal USD appreciation despite rising US real rates.” If the US inflation rate remains higher, this value will continue to increase. UBS notes that the purchasing power parity (PPP) estimate for the Euro to Dollar (EUR/USD) exchange rate has risen already to 1.33 from 1.29. UBS adds “Currency markets are likely to pre-empt future rate hikes and let the greenback appreciate.” High Inflation Will Undermine US Dollar (USD) Fair ValueĪlthough UBS expects that the dollar will strengthen, it does not that there are important vulnerabilities with estimates of fair value liable to weaken. US yields are also likely to increase ahead of an actual rate hike from the US central bank. The Fed will have considered employment and other US activity indicators sufficiently robust to reduce asset purchases.” “Next year the world should look different. ![]() Next year, however, UBS expects that the dollar will regain ground in currency markets with Federal Reserve policies having an important impact. The bank expects that major currencies can strengthen against the dollar into the third and potentially fourth quarter of this year “From a risk-reward perspective, we recommend staying with USD short positions for at least another quarter.” UBS considers that investors can maintain short dollar positions at this stage with generally positive risk sentiment and further recovery in the global economy, especially in Europe. The Pound Sterling is expected to strengthen with EUR/GBP at 0.83 in June 2022.Inflation will limit any US dollar recovery.Dollar to strengthen in 2022 as Fed tightens policy.EUR/USD to rise from current 1.22 to 1.25 by end 2021.Dollar to weaken further before the end of 2021.Inflation Will Pose a US Currency Threat. ![]()
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