UBS Forecasts EUR/USD Surge to 1.16 by 2025
On Tuesday, UBS predicted a volatile path for the EUR/USD pair in the near term, expecting it to gradually rise above 1.10 towards 1.16 by late 2025. "The U.S. election poses a short-term risk to our view. Nonetheless, we believe EUR/USD should be heading towards 1.16 in 2025. From an investment perspective, we recommend selling during USD strength periods, particularly if Trump secures a victory," the firm stated in a note.
UBS highlighted the U.S. dollar's rebound in October following its weakness in August and September, driven by stronger-than-expected U.S. labor market reports and robust U.S. PMI data. Meanwhile, the European Central Bank (ECB) cut rates in response to lower-than-expected European inflation, as seen in the decision taken at last week’s meeting.
Looking ahead, UBS foresees a challenging path for the currency pair, noting that upcoming U.S. labor market reports will be key determinants for the Federal Reserve's future actions. However, the analysis of these reports may be complicated by the recent Milton hurricane. Additionally, the approaching U.S. elections could add further volatility to the market, especially with the possibility of an uncertain outcome.
Despite the potential initial strengthening of the dollar following a Trump electoral victory, UBS does not see a second Trump administration as definitively positive for the USD. The firm suggests that tariffs could affect U.S. GDP and consumers more than the rest of the world, advising investors to capitalize on these USD strength periods.
In Europe, UBS maintains a positive outlook, anticipating economic recovery toward 2025. The firm believes that the current pessimistic sentiment implies any positive economic data from Europe could significantly impact the euro. UBS remains consistent in its forecast that the EUR/USD will rise above 1.10 in the coming weeks and maintain the 1.16 target by late 2025.
For investors, UBS sees the recent dip below 1.10 as an opportunity to reduce USD exposure, identifying the next support level around 1.08 and resistance likely at 1.12 and 1.15. While acknowledging risks, including those related to the U.S. elections, UBS suggests the exchange rate has a higher chance of rising rather than falling.