Currency views from UBS 0 (0)

USD:

  • Market expectations for a Federal Reserve policy rate change
    in June are uncertain, with a 40% chance seen for an unchanged rate and a 60%
    chance for a rate cut.
  • Anticipation
    is that the Fed will guide market expectations more clearly as the June meeting
    approaches.
  • The
    upcoming CPI data
    are key to understanding potential rate moves.
  • UBS
    expects a rate cut in June, which could limit the current USD strength against
    the euro, pound, and other currencies, although the risk remains for continued
    dollar strength if the Fed does not cut rates.

EUR:

  • The
    next ECB meeting is not expected to be decisive, but there’s a growing
    possibility of more concrete signals about a June rate cut.
  • Option
    implied volatility is at extreme lows, making it cheaper to hedge against
    potential market moves.
  • UBS
    anticipates the EURUSD might first drop within the 1.05–1.10 range before
    eventually rising, with a clearer ECB signal on rate cuts potentially injecting
    more activity into the market.

CHF:

  • Despite
    the Swiss franc’s strong momentum indicating further depreciation, fundamental
    factors suggest a potential sideways trend or appreciation against the USD.
  • Short
    to medium-term expectations are for EURCHF and USDCHF to rise further, with a
    potential falter as more clarity on Fed and ECB rate cuts emerges.
  • The
    current wide yield differential between the EUR and CHF is expected to narrow,
    which could temporarily boost EURCHF towards 1.00 but eventually lead to a
    decline in both EURCHF and USDCHF pairs.

GBP:

  • GBPUSD
    saw fluctuations in March, ending back where it started after initially
    rallying due to the UK government’s budget decisions and dovish Bank of England
    signals.
  • Current
    level of 1.26 for GBPUSD is seen as fair, with expectations of an upward
    trajectory reaching 1.30 by the end of the year.

JPY:

  • With
    minimal major economic data from Japan expected, USDJPY will likely be
    influenced by US inflation data and FOMC meeting minutes.
  • Markets
    are alert for a potential FX intervention by Japanese officials if USDJPY
    breaks out significantly.
  • Despite
    the potential for higher exchange rates due to elevated US rates, UBS prefers
    selling upside risk, anticipating more balanced Fed rate cut expectations and
    considering crowded short positions in yen and the Bank of Japan’s stance on
    yen weakness.

This article was written by Arno V Venter at www.forexlive.com.

Go to Forexlive