The following is a rewritten and expanded version of the article originally published by Justin Low on ForexLive through TradingView, summarizing UBS’s latest insights into major currencies for the trading week ahead. All information draws from UBS’s perspectives and current macroeconomic trends shaping foreign exchange markets.
UBS: Major FX Outlook for the Week Ahead
UBS provides its weekly outlook across the major currency pairs, focusing on macroeconomic trends, central bank policy shifts, geopolitical risks, and technical levels. Traders and investors should remain vigilant as nuances in economic data releases and central bank communication continue to play pivotal roles in FX dynamics.
Overview of UBS FX Strategy
UBS views the upcoming week as crucial due to multiple macroeconomic releases and central bank speakers. While markets begin to position for the tail end of the Fed’s rate hiking cycle, inflation data, growth expectations, and risk sentiment are being closely monitored. According to UBS, currencies may diverge more based on differential economic trajectories rather than interest rate cycles alone.
Key themes UBS is tracking:
– Diverging economic strength among developed economies
– Pausing or shifting direction in central bank monetary policy
– Market volatility arising from geopolitics and global recession fears
– Inflation data impacting rate expectations
– Performance of the USD amid potentially softer U.S. growth
Individual Currency Outlooks
Here is UBS’s view on each of the major currencies for the week ahead:
US Dollar (USD)
The greenback continues to reflect uncertainty around U.S. macroeconomic momentum. With the Federal Reserve signaling a commitment to a “higher for longer” policy stance, the dollar has found some resilience. However, softer data might weaken this support over time.
Drivers of USD this week:
– Upcoming US CPI and retail sales figures
– Comments from key Federal Reserve officials
– Market sentiment surrounding the likelihood of future rate cuts
UBS remains cautious about chasing near-term dollar strength, noting:
– USD strength could fade if inflation data surprises on the downside or rate cut expectations accelerate
– Risk sentiment and bond yields remain key drivers of intraday moves
Euro (EUR)
The euro is being supported in part by diminishing rate cut expectations from the European Central Bank (ECB), but economic conditions remain fragile. UBS notes that although the euro has rebounded slightly, its outlook remains mixed.
Key considerations for EUR:
– Recent hawkish ECB commentary suggests rate cuts are not imminent
– Economic activity in major Eurozone countries remains sluggish
– Industrial data and PMIs to influence EUR positioning
Despite political stability across much of the Eurozone, persistent downside inflation risks and poor consumer data keep investors cautious.
UBS sees limited upside for EUR/USD unless there is a notable widening in US-Eurozone data divergence.
British Pound (GBP)
Sterling remains supported by a relatively hawkish Bank of England (BoE), but UBS notes upside may be limited as growth pressures weigh in.
GBP drivers this week:
– UK employment and inflation data are primary catalysts
– Markets increasingly split on whether the BoE can hold rates flat
– Recessionary concerns may resurface if economic data disappoints
BoE officials have signaled intent to allow more data to settle before committing to rate moves, which increases short-term volatility.
UBS believes GBP could remain within a defined range barring significant surprises in the inflation release.
Japanese Yen (JPY)
The Japanese yen continues to show weakness due to persistent yield differentials. The Bank of Japan (BoJ)’s loose monetary policy remains a strong headwind for JPY.
Critical factors impacting the JPY:
– The BoJ remains committed to accommodative monetary policy
– Japanese inflation and wage growth data remain subdued
– Increased foreign bond purchases continue to pressure the yen
Currency intervention risk is once again being discussed, especially if USD/JPY approaches 150. UBS notes:
– Japanese officials have historically intervened near these levels
– Lack of central bank tightening contrasts with other G10 peers
UBS expects the JPY to stay under pressure in the
Explore this further here: USD/JPY trading.