UBS Bank warns: The dollar may continue to weaken soon
The Swiss bank UBS has published a market review and recommends that investors re-examine their foreign currency exposure, amid concerns over the stability of US debt and the expected surge in the price of gold.
The daily market review of the Global Wealth Management department at the Swiss bank UBS, published on Monday, points to continued pressure on the US bond market, noting that the economic forces behind it are stronger than the government's point interventions.
Last week, the US Treasury tried to support the bond market, but the impact was short-lived. The yield on the 30-year US government bond climbed back to around 5.27%. UBS explains that structural factors are behind the pressure, including the large fiscal deficits of the US, energy prices, and high demand for capital for investments in artificial intelligence infrastructure.
The bank recommends at this stage to prefer short- and medium-term bonds until a clearer picture is obtained regarding inflation and growth. According to them, volatility in long-term bonds is expected to continue.
One of the most prominent figures in the review concerns gold. The price of the metal rose by about 15% during the month, and UBS predicts that within 12 months it may reach 5,400 dollars per ounce. The bank attributes the forecast, among other things, to concerns surrounding the stability of US government debt and the weakness of the dollar.
The American currency is also under pressure. UBS estimates that the dollar may continue to weaken, partly because the Federal Reserve's window of opportunity for further interest rate hikes is narrowing. Accordingly, the bank recommends that investors re-examine their foreign currency exposure.
Despite the high yields on bonds, UBS does not recommend giving up on the stock market. The weakness of the dollar may soften some of the impact of the burdensome financing conditions, and therefore the recommendation is to maintain a diversified exposure to cyclical stocks, technology companies, and defensive stocks.
Europe also provides a bright spot. The Purchasing Managers' Index in the Eurozone stood at 52.1 in August, a figure that indicates continued expansion of business activity. UBS specifically notes the strengthening of manufacturing and estimates that the European Central Bank may be satisfied with one more interest rate hike. At the same time, the bank upgraded the technology sector in Europe to an attractive recommendation.
In North America, trade tension continues between the US and Canada. Canada announced retaliatory tariffs in the amount of 20 billion dollars, which will take effect on September 8, after the US imposed a 50% tariff on Canadian goods of the same amount. Despite the tension, UBS estimates that the effective tariff rate of the US will remain in the range of 10% to 15% this year.
The picture presented by the bank is complex: on one hand, government intervention is struggling to change the trends in the US bond market. On the other hand, the weakness of the dollar, the recovery in Europe, and the demand for assets like gold may create new opportunities for investors in a period of uncertainty.
