The U.S. dollar could remain the dominant force in global foreign exchange markets during the second half of 2026, according to UBS.
The bank has raised its forecasts for the dollar against several major currencies. Higher U.S. interest-rate expectations and resilient economic conditions are expected to support continued demand for the greenback.
UBS Cuts Its Euro Forecast
UBS expects the euro to weaken further against the U.S. dollar. As a result, the bank lowered its end-of-2026 EUR/USD forecast to 1.12 from its previous target of 1.14.
The revised outlook reflects the recent repricing of U.S. interest rates. UBS also expects further monetary policy tightening from the Federal Reserve, which could provide additional support for the dollar.
Japanese Yen Could Fall to 165
The bank also predicts further weakness in the Japanese yen. UBS expects USD/JPY to reach 165 by the end of the third quarter and remain near that level at the end of 2026.
Although investors have increased their long-dollar positions, UBS believes positioning has not yet reached extreme levels. Therefore, the dollar may still have room to rise.
U.S. Dollar Index Targets New Highs
According to UBS, the U.S. Dollar Index has already climbed to new highs for 2026.
The bank believes the DXY could test the 102 level, which was last reached in May 2025. While bullish dollar positioning has grown, it remains well below the extreme levels recorded in 2024.
This suggests that investors could continue increasing their exposure to the U.S. currency.
British Pound Expected to Remain Resilient
UBS maintained a positive outlook for the British pound. The bank expects sterling to remain relatively resilient due to a stable fiscal outlook and supportive capital flows.
It forecasts EUR/GBP moving toward 0.85 by the end of the year. UBS also highlighted sterling’s attractive carry profile and the limited effect of domestic political developments on the currency.
UBS Turns More Cautious on Australian Dollar
In contrast, UBS has become less optimistic about the Australian dollar.
The bank reduced its end-of-2026 AUD/USD forecast to 0.68 from 0.74. The downgrade follows weaker Australian economic data and declining support from interest-rate differentials.
UBS also expects less currency-hedging demand from Australian pension funds, which could place further pressure on the Australian dollar.
Swiss Franc Faces Near-Term Pressure
UBS also expects the Swiss franc to weaken in the near term.
The Swiss National Bank’s dovish monetary policy could encourage investors to use the franc as a funding currency for carry trades. However, UBS believes structural factors may help the Swiss currency recover some of its losses later in the year.
Overall, UBS remains bullish on the U.S. dollar as higher interest-rate expectations and strong economic fundamentals support the currency. Meanwhile, the euro, Japanese yen, Australian dollar and Swiss franc could face additional pressure.
Tags: U.S. dollar, UBS, EUR/USD, USD/JPY, U.S. Dollar Index, forex market, currency outlook
