UBS Forecasts EUR/USD at 1.20 Amid Dollar Weakness

Key Report Highlights

A new UBS report forecasts the EUR/USD exchange rate will approach 1.20, driven by a slightly weaker U.S. dollar outlook for the first half of 2024. The analysis cites several key factors contributing to dollar volatility, including stalling disinflation and a cooling labor market.

Market Overview

The U.S. dollar's performance is currently affected by significant uncertainty surrounding the Federal Reserve's leadership. According to the Swiss bank, an ongoing Department of Justice investigation involving Fed Chair Jerome Powell is a primary factor weighing on the currency's stability.

Economic and Market Impact

Market participants are now closely watching upcoming economic data, particularly the US core PCE inflation figures, following several mixed reports. Additionally, international factors such as the Bank of Japan’s upcoming policy decisions are expected to introduce further volatility into currency markets, notably impacting the USD/JPY pair. In this environment, UBS strategists recommend a long position on EUR/SEK, anticipating a correction in the Swedish krona.

Summary

UBS maintains its outlook for dollar weakness against select currencies. The market's immediate focus will be on new inflation data and central bank meetings, which will provide clearer direction for foreign exchange trading patterns.

FAQ

Q: What is UBS's price target for EUR/USD?
A: UBS projects the EUR/USD exchange rate will settle closer to 1.20.

Q: Why does UBS expect the U.S. dollar to weaken?
A: Key factors include an investigation related to the Fed Chair, stalling disinflation, a cooling labor market, and overall leadership uncertainty.

Q: What are the key economic events to watch?
A: Upcoming US core PCE inflation data and central bank meetings, including the Bank of Japan's policy decision, are critical.

Source: Investing.com