UBS predicts EUR/USD at 1.20. Here’s why

The U.S. dollar continues to experience volatility as Federal Reserve Chair Jerome Powell faces an ongoing Department of Justice investigation, according to a new UBS report released Thursday.

The Swiss banking giant cited the investigation, stalling disinflation, and a cooling labor market as key factors affecting dollar performance.

UBS maintains its outlook for a slightly weaker dollar through the first half of 2024, projecting the EUR/USD exchange rate to settle closer to 1.20. The bank’s analysis points to persistent uncertainty over Federal Reserve leadership as an additional factor weighing on the greenback.

Market attention next week will focus on upcoming inflation data releases and central bank meetings, particularly the hearing of arguments in the case of Fed Governor Lisa Cook. UBS notes that US core PCE (Personal Consumption Expenditures) figures will be closely monitored following several mixed economic prints in recent weeks.

The Bank of Japan’s upcoming policy decision and potential elections will be significant factors for USD/JPY trading patterns, according to the report. These events could introduce additional volatility into currency markets already navigating uncertain conditions.

UBS strategists recommend a long position on EUR/SEK, suggesting the Swedish krona appears poised for a correction after experiencing a strong performance over the past month. This positioning reflects the bank’s broader view on dollar weakness against select currencies.