The dollar has been buoyed by the return of the “Trump trade” as Republican presidential candidate Donald Trump’s chances of returning to the White House appear to be increasing. However, UBS believes that stronger gains should be sold as Trump is not necessarily positive for the greenback.
“We continue to expect a dollar recovery in the event of a Trump victory. However, we do not see Trump as an outright USD positive in the medium term and therefore advise selling stronger dollar rallies,” UBS said in a note on Friday.
This view comes as the US election, which takes place in just over two weeks, is still too uncertain to predict a winner, although Trump has gained ground in recent weeks and now has a narrow lead over Vice President Kamala Harris in some polls.
The dollar’s recent rise has been attributed in part to the market pricing in a higher probability of a Trump victory, with the greenback seen as one of the so-called Trump trades that have gained traction.
The dollar’s boost from the “Trump trades” may prove fleeting, says UBS. The euro-dollar ratio is likely to move toward 1.16 in 2025, suggesting limited upside for the greenback in the long term.
In the broader FX market, some emerging market currencies that have struggled against the dollar in recent weeks are likely to remain popular.
“We think the South African rand, supported by a more reform-minded government, and the Mexican peso, which already prices in a high risk premium for political unrest, are good options to collect carry over the medium term,” UBS said.
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Reference;
Ebrahim, Y. (2024) Dollar riding return of ‘Trump Trade,’ but gains will likely be fleeting: UBS By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/forex-news/dollar-riding-return-of-trump-trade-but-gains-will-likely-be-fleeting-ubs-3671696 (Accessed: 19 October 2024).
