No incentive to buy the US dollar – UBS

The Federal Reserve has  taken steps to mitigate funding and liquidity issues, and economists at UBS expect the USD to depreciate as lockdown measures are relaxed. 

Key quotes

“With Fed policy remaining easy, interest rate differentials are likely to stay subdued and provide no incentive to buy the USD. As the global economy gradually recovers this is likely to favor export-oriented currencies like the euro over the USD.”

“We see the dollar depreciating, reaching EUR/USD 1.13 and GBP/USD 1.33. In our FX strategy we prefer the GBP to the USD.” 

“Looking much further ahead, there is potential for the dollar to appreciate again when central banks start to remove monetary accommodation. In recent years the US economy has proved more dynamic than the Eurozone, and we would expect the Fed to reach the point where it has room to tighten ahead of the European Central Bank.”