USD rally to run out of steam, furthr gains to be modest and short-lived – UBS
01.06.2022, 07:26

USD rally to run out of steam, furthr gains to be modest and short-lived – UBS

The US Dollar Index (DXY) hit a near 20-year high in mid-May. Even after a recent retreat, the DXY is still up 13.3% over the past year and 6.3% year-to-date. But economists at UBS think the USD rally has run its course, and see limited upside from here.

US dollar’s best days may be behind us

“We now see the risks to the greenback as being more balanced, especially against the Swiss franc and the Japanese yen, both of which are also traditional safe-haven currencies. Any worsening of geopolitical concerns should support those two low-yielding currencies.”

“We see another 10% upside in broad commodity indexes over the next six months, supported by structural imbalance, bans in various forms (sanctions, export restrictions) and weather risks. This bodes well for commodity-linked currencies against the USD.”

“We have lowered our USD preference to neutral. We expect any further USD gains to be modest and short-lived.” 

“Despite the ECB’s plans to begin rate hikes, we see limited gains for the euro due to economic headwinds. Instead, we favor commodity-linked currencies including the Australian dollar, New Zealand dollar, Norwegian krone, and the Canadian dollar, which should benefit from stronger investment activity and improving balance of payments positions.”

 

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