The dollar index has risen more than 3% since the beginning of the year, driven mainly by strong US economic data and interest rate cuts in other major economies. However, UBS strategists believe that these periods of dollar strength can be used to reduce exposure to the dollar or to engage in volatility selling strategies to generate income, in anticipation of likely rate cuts later this year.
In real trade-weighted terms, the US dollar is not cheap and is currently at levels similar to those seen in the mid-1980s and early 2000s, strategists noted.
“We believe depreciation pressures could increase if markets begin to price in a deeper cycle of rate cuts by the Fed. Fears about the size of the US fiscal deficit may also contribute to a weaker dollar in the long term “they wrote.
A Republican victory in the White House and Congress could raise expectations of a stronger dollar. However, given the already elevated value of the US dollar, which is 17% to 18% stronger than when President Trump first took office, “we would expect this effect to be weaker than during Trump’s first term.” , added the UBS team.
Among world currencies, the bank has the preferred stance on the Swiss franc. The currency has depreciated around 6% against the US dollar so far this year, with the Swiss National Bank (SNB) the first major central bank to cut rates.
“We expect the Swiss franc to appreciate from now on and move the currency from neutral to preferential,” the strategists said.
UBS expects the SNB to further reduce its policy rate to 1.00% from 1.25% following the June rate cut. The franc is known for its safe haven qualities, offering stability amid political uncertainty in Europe, the United States and elsewhere.
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Additionally, 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 efforts by OPEC+ to balance the market. For risk-tolerant investors, selling the risks of a decline in the Brent price could be considered.
Strategists also expect the copper market to remain in deficit from a fundamental perspective, predicting the metal will reach $11,500 per metric ton by the end of the year.
As for gold, the bank maintains its bullish view, mainly due to strong demand for central bank reserve diversification and its role as a portfolio hedge ahead of the US elections. In its base case, UBS forecasts gold will rise to $2,600 per ounce by the end of the year and $2,700 per ounce by mid-2025.
