UBS revised its forecast for the EUR/USD exchange rate, citing a lack of strength in the US dollar despite expectations that certain political events would bolster it. Contrary to these expectations, gold prices and bitcoin have experienced a surge rather than the greenback.
The revision by UBS reflects a complex interplay of factors, including recent soft US economic data and a decrease in Treasury yields, which have not supported the dollar as anticipated.
The bank has adjusted its end-Q3 and end-2024 forecasts for the EUR/USD pair to 1.08, up from the previous 1.05 prediction. This change comes amid market speculation that the Federal Reserve might consider a 50 basis point rate cut in 2024, with discussions of rate reductions potentially beginning as early as September.
These expectations have become a more dominant influence on currency valuations than potential USD-related policies from the Trump administration should he win the upcoming election.
UBS's revised forecast aligns with its new outlook on the Federal Reserve's monetary policy, which now includes the possibility of two rate cuts in 2024. Meanwhile, the European Central Bank (ECB) has maintained a cautious stance on future rate cuts.
While these developments weaken the case for the EUR to hit new lows in 2024, UBS still anticipates a modest decline in the euro's value, considering the potential for economic growth indicators to soften in significant economies such as France.
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