Financial giant UBS expects the US dollar to continue to depreciate, advising investors to reassess their portfolios. The bank predicts a medium-term decline due to a reduction in interest rates and rising fiscal deficits. With the dollar down 5% since June, UBS recommends strategies such as currency hedging and diversification into other currencies and assets such as gold to reduce risk.
UBS sees potential for US dollar decline, advises investors to reduce US dollar holdings
Financial giant UBS highlighted potential risks to the US dollar on Monday, suggesting that investors should reassess their exposure. UBS’s chief investment officer (CIO) predicts the dollar will continue to decline in the medium term due to the narrowing interest rate advantage and concerns about the US fiscal deficit. UBS stated:
We expect the greenback to continue to depreciate.
The research team notes that the US dollar index (DXY) has fallen 5% since its peak in June. UBS also believes that the close scrutiny of US fiscal conditions after the election could weaken the currency further.
Investors with large unhedged assets in the US may need to adjust their portfolios, the UBS team recommended. Strategies such as hedging US positions through currency futures, swaps or using hedged equities have been suggested. Additionally, “gold can be an effective diversifier,” the CIO said, with prices expected to rise amid lower interest rates and ongoing geopolitical uncertainty.
UBS further explained the possibility of further strength for the Swiss franc, especially against the US dollar, due to limited rate cuts by the Swiss National Bank and geopolitical tensions. The research team concluded:
Investors should reduce their USD holdings as the currency is likely to continue to weaken in the medium term.
“We like the Swiss franc, euro, pound sterling and Australian dollar. We also recommend a gold allocation of up to 5% in a balanced USD portfolio,” UBS added.
What do you think about UBS's warning about a possible US dollar decline and their recommendations? Let us know in the comments below.
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