They hope that the cut of interest rates and the fears of fiscal deficit weaken the dollar.
Geopolitical tensions could spread far beyond this fourth quarter.
UBS, a leader in global financial services, is recommending to investors to reduce their exposure to the dollar, opting for diversification with other coins in G10 countries, as well as explore alternatives such as gold.
In this way, through an official publication, dated September 30, the financial giant Invite investors To consider the possible impact of a dollar depreciation In their wallets. This, taking into account that many global investors have large positions in American actions and bonds without coverage.
The diversification of the portfolios is one of the measures that UBS considers most appropriate, given the possibility that the US currency continues to lose value.
This situation has been observed mainly since the beginning of July, a period in which the DXY dollar index, which measures the evolution of the US currency compared to six other important currencies, It has experienced a drop of approximately 5%.
Hence, the recommendation is to take advantage of periods of strength of the dollar to cover positions in US currency through futures, swaps, currency options or structures, as well as changing to classes of covered shares. “We like the euro, the sterling pound and the Australian dollar,” says UBS.
“The situation will not improve after the elections”
In its analysis, the UBS team provides that the dollar interest rate advantage over other currencies will be further reduced during the next year.
At this point, they observe that investors in shares have felt encouraged by the commitment of the Federal Reserve (FED) to support economic growth, along with the guarantees of President Jerome Powell that the risk of a recession in the United States remains low.
However, unlike what the president of the Fed has said, analysts do not show confidence in the reduction of interest rates that were applied two weeks ago. On the contrary, they expect the lowest rates and fiscal deficit fears Weaken the dollar In the medium term.
“We also believe that a renewed approach to the US fiscal deficit could weigh on the currency once the elections end in that country,” explain UBS analysts, referring to the elections that will be carried out next November and whose triumph is disputed, almost in equal opportunities, Donald Trump and Kamala Harris.
That is why it is expected that gold prices rise even more. All this, in a scenario with lower interest rates, economic and geopolitical uncertainty, and a process of diversification of the reserve assets of the central banks, Far from the US dollar.
Although other important central banks are willing to further reduce rates (including the European Central Bank, the Swiss National Bank and the Bank of England), our opinion is that Fed will reduce rates at a pace faster than its peers. This will continue to undermine the performance advantage of the US dollar, a key support for the currency in the last two years.
UBS.
In general, the firm concludes that the beginning of the FED flexibility will create obstacles to the US dollar and increase the incentive for investors, who do not have their base in the dollar, reduce exposure to currency. “This will have broader implications in all classes of assets, adding to a favorable environment for actions, gold and oil.”
It should be added that, although the firm does not refer to Bitcoin (BTC), its statements also look favorable for the digital currency, especially taking into account the positioning it has achieved throughout this year as an investment asset and value refuge .
