Who would have imagined that the almighty US dollar would suddenly find itself in the crosshairs? Recent US economic data painted a rosy picture, and the dollar happily reclaimed its throne. However, UBS analysts offer a friendly reminder that it is premature to chill out because things might change in 2025. Even the king dollar among other currencies could get into trouble.
For two years straight, the US economy enjoyed robust expansion—all economic indicators were on the rise, and it seemed like the Federal Reserve’s tight monetary policy was as eternal as the pyramids. But times are changing, and UBS believes that the need for tightening is no longer justified. Inflation has finally decided to take a breather whereas the labor market weakened a bit. Unsurprisingly, the US central bank decided to cut the federal funds rate by 0.5% at the meeting in September.
In turn, due to rate cuts in the US, the dollar is set to lose bullish momentum. The US used to pay its bills with such high interest rates that made other countries envious—G10 looked pale in comparison! But the era of high interest rates is ending. So, investors are shifting focus to other countries where they can invest more profitably.
UBS bluntly warns that the US dollar index will weaken by mid-single digits. Therefore, if you are looking for where to place your investments, take a closer look at the Swiss franc, pound sterling, and Australian dollar—these currencies have been holding up pretty well. For example, the Swiss franc has not suffered from low interest rates anyway. UBS predicts that USD/CHF will be trading at 0.80 by the third quarter of 2025. Thumbs up for a country known for its watches, not yields!
The UK and Australia are not planning to lag behind either. Their economic growth is not causing any panic, and inflation is not as stubborn as in some other countries. UBS predicts that yields in these countries will remain high, taking market share from the US dollar. Both the British pound and the Australian dollar are expected to extend their uptrend in 2025.
To sum up, by the end of 2025, USB analysts foresee some interesting figures: AUD/USD at 0.75 and GBP/USD at 1.38. Well, it seems like it is the right time to take a closer look at these currencies and wave goodbye to the US dollar—for a while, at least.