Capstone Holding Corp. lowers convertible note conversion price to $1.00
UBS analysts highlighted that the current tariff concerns, particularly with countries like Colombia, could lead to a resurgence in dollar strength. They noted that the support for the USD is also expected to come from the United States’ relatively better growth and the divergence in monetary policy dynamics compared to other economies.
UBS favors taking directional positions in certain currency crosses, recommending a long position in the Australian Dollar against the New Zealand Dollar (AUD/NZD) and a short position in the Swiss Franc against the Norwegian Krone (CHF/NOK).
Despite a recent pullback in option volatility, the analysts still see lucrative opportunities for yield pickup strategies, particularly with currency pairs linked to the British Pound (GBP) or the Japanese Yen (JPY).
The firm observed that since President Trump’s inauguration, his softer stance on tariffs has helped to pause the rally of the USD. Currencies that typically perform well in pro-growth environments, such as the GBP and the Swedish Krona (SEK), have outperformed other G10 currencies. Emerging market currencies have also made gains on average against the USD.
However, commodity-linked currencies like the Mexican Peso (MXN) and the South African Rand (ZAR) have not fared as well, and traditional safe havens such as the Swiss Franc (CHF) and the Japanese Yen (JPY) have found support amidst concerns that DeepSeek’s AI model may disrupt the dominance of U.S. tech companies—a factor that has affected tech stocks and spilled over into the foreign exchange market this week.
Speculative long positions in the USD, which were significantly high entering January, have likely decreased since the presidential inauguration, reflecting a reduced pricing of tariff risks. U
BS analysts caution that this sentiment may be premature and anticipate that tariff-related volatility will continue to influence exchange rates in the coming months. They advise investors to prepare for fluctuations throughout the year.
Despite the potential volatility, UBS advises investors to maintain a positive outlook on the USD in the short term. The firm emphasizes that the relative growth dynamics between the U.S. and Europe have been crucial for the USD’s strength and the consistent decline of the Euro against the USD (EUR/USD).
UBS does not foresee a reversal of this macroeconomic narrative in the first half of 2025.
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