Investing.com – The dollar recently hit new year-to-date highs against its rivals and is likely to remain strong after the Federal Reserve became more hawkish at its recent December meeting, UBS analysts said in a note. recent note.
“While we still expect the dollar to fall, we now see less weakness in 2025 due to these factors and have slightly adjusted our forecasts,” UBS analysts said in a recent note.
The less bearish view on the dollar comes in the wake of the dollar hitting new year-to-date highs on major exchange rates and expectations of fewer rate cuts in the United States.
“The dollar has been buoyed lately by prospects for fewer Fed rate cuts and tariff risks,” the analysts said.
The euro has been particularly affected by the strength of the dollar, but is expected to trade around $1.05 against the dollar in the first half of 2025, analysts forecast.
But a significant drop towards parity cannot be ruled out, “due to real tariff threats or a greater divergence in the macro context between the United States and Europe,” the analysts added.
Still, any move toward parity should be short-lived, analysts said, amid expectations that the economic backdrop in Europe will improve in the second half of the year, narrowing the divergence between European and U.S. yields.
“The trajectory back to the middle of the trading range or higher, 1.08 to 1.10, comes with the view that two-year yield spreads will still narrow to some extent and better macroeconomic data outside Europe will provide some underlying support for EURUSD in 2H25,” the analysts said.
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