Dollar strength will continue, says UBS, forecasting EUR/USD to end year below parity By Investing.com

Investing.com — Dollar bulls are unlikely to buckle anytime soon as higher interest rates from the Federal Reserve coupled with other central banks and pro-growth policies, including taxes, are likely to ensure the greenback continues to top the G-10 peers including the euro, Canadian dollar and yen.

“[T]it is most likely still a strengthening USD as part of a natural consequence of US policies that work to create excess demand, high interest rates and a stronger currency, at the same time as other countries cut interest rates and reduce inflation fears relative to those that are rising.” , UBS said in a recent note.

EUR: by the end of the year below parity with the USD: Tthree bearish factors burden the euro

1. The convergence of interest rates with other low-yielding currencies such as the Japanese yen and the Swiss franc is expected to increase the attractiveness of the euro as a funding currency.

2. The political outlook for the Eurozone remains bleak, with potential risks arising from the German elections.

3. Concerns about US tariffs pose a threat to the Eurozone economy.

UBS predicts it will be 0.990 by the end of 2025.

JPY: Follows BoJ advice amid hopes a rate hike will turn things around

The outlook for the yen is linked to expectations of policy changes by the Bank of Japan. UBS expects the BOJ to achieve a rate hike of 75 basis points, compared to the current market positioning of 50 basis points, potentially supporting the yen.

But the path to a BOJ interest rate hike is not an easy one. The central bank raised rates in December and may not be interested in raising again at a time when “US policy is still unknown and could be potentially dangerous for Japan,” UBS said, noting the risk of US tariffs.

UBS forecasts 150 by the end of 2025, down from around 158 now.

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