The dollar index has climbed more than 3% since the start of the year, driven mainly by strong US economic data and interest rate cuts in other major economies. However, UBS strategists believe these periods of dollar strength can be used to reduce dollar exposure or to engage in volatility selling strategies to generate income, anticipating likely rate cuts later this year.
In real trade-weighted terms, the US dollar is not cheap, currently at levels similar to those seen in the mid-1980s and early 2000s, strategists noted.
"We believe depreciation pressures could mount if markets start to price a deeper Fed rate-cutting cycle. Fears about the size of the US fiscal deficit may also contribute to a weaker greenback over the longer term," they wrote.
A Republican sweep of the White House and Congress could raise expectations for a stronger dollar. However, given the already elevated value of the US dollar, which is 17–18% stronger than when President Trump first took office, "we would expect this effect to be weaker than during Trump’s first term,” UBS’s team added.
Among global currencies, the bank has the most preferred stance on the Swiss franc. The currency has depreciated by around 6% against the US dollar year-to-date, with the Swiss National Bank (SNB) being the first major central bank to cut rates.
"We expect the Swiss franc to appreciate from here and move the currency to most preferred from neutral," strategists said.
UBS expects the SNB to further lower its policy rate to 1.00% from 1.25% following June's rate cut. The franc is known for its safe-haven qualities, offering stability amid political uncertainty in Europe, the United States, and elsewhere.
Moreover, strategists see several more opportunities in the commodities market.
They forecast Brent crude oil prices to end the year at around $87 per barrel, supported by solid demand and OPEC+ efforts to balance the market. For risk-tolerant investors, selling Brent’s downside price risks could be considered.
Strategists also expect the copper market to remain in a deficit from a fundamental perspective, forecasting the metal to reach $11,500 per metric ton by year-end.
For gold, the bank retains its bullish view, primarily due to strong central bank reserve diversification demand and its role as a portfolio hedge ahead of the US elections. In their base case, UBS forecasts gold rising to $2,600 per ounce by year-end and $2,700 per ounce by mid-2025.