US Dollar to travel along a weaker path – UBS

Economists at UBS expect the US Dollar to travel along a weaker path, with limited and short-lived bouts of strength.

US Dollar on a weaker path

“The Fed is getting closer to the end of its rate-hiking cycle. With markets growing comfortable with a terminal fed funds rate close to or at 5%, and US inflation likely to quickly roll over in the first half of this year, downward pressure on the USD should continue to mount.”

“Reduced carry advantage could weigh on the Dollar over the medium term. Last year, an increasing US-Germany 10-year interest rate differential was a tailwind for the strong Dollar rally. However, the yield differential is likely to be less supportive this year.”

“Better growth outlook ex-US supports other currencies. We believe that a rebound in global growth expectations for the second half of 2023 and 2024 should support the Euro and the currencies of Asia’s major exporters.”