The U.S. dollar remains volatile as Federal Reserve Chair Jerome Powell continues to face an ongoing Department of Justice investigation, according to a new report released Thursday by UBS.
The Swiss banking group pointed to the investigation, slowing disinflation progress, and signs of a cooling U.S. labor market as key drivers influencing recent dollar performance.
UBS reiterated its expectation for a moderately weaker U.S. dollar during the first half of 2024, forecasting the EUR/USD exchange rate to move closer to the 1.20 level. The bank also highlighted lingering uncertainty surrounding Federal Reserve leadership as an additional factor weighing on the greenback.
Looking ahead, markets are expected to focus on next week’s inflation data releases and upcoming central bank events. Particular attention will be paid to arguments in the case involving Fed Governor Lisa Cook, as well as the latest U.S. core PCE inflation figures, which UBS says will be closely watched following a series of mixed economic readings in recent weeks.
In Asia, the upcoming policy decision from the Bank of Japan, along with potential election developments, could play an important role in shaping USD/JPY trading. UBS warned that these events may add further volatility to already unsettled currency markets.
Elsewhere, UBS strategists recommended a long position in EUR/SEK, arguing that the Swedish krona appears vulnerable to a near-term correction after its strong performance over the past month. This trade aligns with the bank’s broader outlook for a softer dollar against selected currencies.
