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Investing.com - UBS maintains its end-Q3 target of 1.2000 for EUR/USD, with an expected year-end level of 1.2300, after successfully meeting its previous Q2 target of 1.1800.
The bank projects a quarterly trading range of 1.1350-1.2050 for the third quarter, representing a 6.2% range that is significantly narrower than the 9.3% range observed in Q2. UBS acknowledges the possibility of a corrective dollar rally in the near term, potentially driven by a positioning squeeze.
UBS economists anticipate a U.S. labor market slowdown over the summer that could prompt the Federal Reserve to cut interest rates by 100 basis points in 2025, beginning with the September 17 FOMC meeting. This outlook assumes markets will price in at least 75 basis points of Fed cuts for 2025 by the end of Q3.
The bank expects hedging flows will continue to limit the scope of dollar rallies on a medium-term basis. Additionally, UBS notes the dollar still maintains a carry premium that allows it to outperform when there is a lack of negative news.
UBS also forecasts that market participants will likely demand a risk premium related to discussions about the Federal Reserve Chair replacement, conversations expected to intensify in September.
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