Based on the original article by Tim Clayton published at ExchangeRates.org.uk, titled “UBS Forecast: Dollar Selling to Resume, Buy EUR/USD at 1.15, Target 1.20”, here’s a rewritten and expanded version of the report, with added depth, context, and clarity for readers interested in foreign exchange markets.
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# UBS Forecast: Renewed Dollar Weakness Expected – Analysts Recommend Buying EUR/USD at 1.15 with Target of 1.20
In a significant market forecast, UBS, a leading global investment bank and financial services company, has reiterated its view that the US dollar is poised to resume its downward trend in the medium term. With improving eurozone fundamentals and anticipated shifts in monetary policy from central banks, UBS strategists advocate buying the EUR/USD currency pair at the level of 1.15, aiming for a target of 1.20.
This recommendation comes amid broader conversations in the financial world about global macroeconomic trends, expectations surrounding central bank behavior, and the evolving risk sentiment driving foreign exchange markets.
## Summary of UBS Euro-Dollar Forecast
UBS analysts hold the following key positions regarding the euro and US dollar:
– The rally in the dollar in recent weeks is seen as temporary.
– A shift in Federal Reserve policy is expected to weigh on the dollar over the remainder of 2025.
– Structural, cyclical, and technical supports for the US dollar are weakening.
– The euro is likely to benefit from improved euro-area fundamentals and more stable political conditions.
– UBS has initiated a long EUR/USD trade at 1.15, setting a near-term target of 1.20.
This perspective reflects the bank’s broader macroeconomic outlook, encompassing expectations about monetary tightening, inflationary pressures, and relative growth differentials between major economies.
## Context: Recent Dollar Strength and Market Uncertainty
The US dollar has experienced a bout of renewed strength in mid-2025, driven by resilient economic data, relatively high Treasury yields, and a cautious stance from the Federal Reserve in easing policy. In recent weeks, global investors have moved into dollar-denominated assets seeking shelter from volatility elsewhere.
Key drivers of the dollar’s temporary strength include:
– Delays in expected Federal Reserve interest rate cuts.
– Stronger-than-anticipated US payroll and consumer inflation data.
– Rising geopolitical risks, which often trigger safe-haven flows into the dollar.
– A divergence in growth outlook between the US and other developed markets.
However, UBS believes this dollar resilience is a temporary phenomenon. The bank expects that forthcoming economic data, along with an eventual pivot by the Federal Reserve, will catalyze a renewed dollar sell-off, in line with broader market expectations for policy normalization.
## Fed Policy Stance and Implications for the Dollar
A central pillar of the UBS forecast is that the US Federal Reserve has limited room to continue maintaining high interest rates without triggering broader economic weakness. While inflationary pressures have been more persistent than anticipated, there are signs that underlying price pressures are softening.
UBS expects that:
– The Federal Reserve will proceed with its first rate cut as early as Q4 2025.
– Real interest rates are expected to fall as inflation moderates.
– Lower interest rate differentials will reduce demand for the dollar relative to other G10 currencies.
These expectations represent a meaningful shift from the policy stance seen through much of 2024 and early 2025, when sticky inflation and strong job markets kept the Federal Reserve cautious. As data begins to align more closely with the Fed’s dual mandate — stable prices and full employment — the case for easier monetary policy becomes increasingly persuasive.
## Euro Fundamentals Rebounding: Political and Economic Factors
On the euro side of the equation, UBS points to improving fundamentals in the eurozone, both economically and politically. While the past several years have seen the region hampered by sluggish growth and high energy prices, recent trends suggest a more resilient recovery is underway.
Positive tailwinds for the euro include:
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