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Investing.com -- UBS has updated its currency forecasts, predicting that the Euro will strengthen against the U.S. dollar, with the EUR/USD targets now set to 1.10, 1.12, 1.12, and 1.14 through March 2026, up from previous forecasts of 1.06, 1.08, 1.10, and 1.12, respectively.
The revisions come amid expectations of more aggressive rate cuts by the Federal Reserve in response to the impact of higher tariff rates on U.S. consumers’ purchasing power and corporate investment.
"We expect the U.S. economy to be hit the hardest by the new tariffs, and see more easing from the Fed than the European Central Bank (ECB) from here," UBS FX strategists wrote in a client note.
UBS suggests that the U.S. maintains one of the highest interest rates in the G10, and with the Fed potentially needing to cut rates quickly to neutral or below, investors are likely to become more cautious on the dollar.
UBS also notes that with U.S. exceptionalism now in question and the Fed likely being forced to act more decisively, the dollar weakness has emerged quicker than anticipated. The bank maintains its view that the dollar’s strength will be limited going forward and advises using rallies to reduce exposure to the currency.
Moreover, UBS recommends hedging extended the dollar exposure. As such, the bank’s forecasts for other currency pairs also saw adjustments.
The USD/CHF forecast was lowered to 0.86, 0.85, 0.85, and 0.83 from 0.90, 0.88, 0.86, and 0.85 over the same period. The GBP/USD targets were raised to 1.31, 1.33, 1.33, and 1.34, up from 1.26, 1.29, 1.31, and 1.33.
However, the EUR/CHF estimate remains unchanged at around 0.95, and the EUR/GBP forecast was only slightly adjusted, with the March 2026 target increased to 0.85 from 0.84.