The dollar has risen sharply since September, but some financial institutions are advising investors to bet on further strength. Investment bank UBS has taken a contrarian stance, warning investors not to chase the dollar’s recent gains. UBS Wealth Management strategists led by Dominic Schneider said in a note to clients on December 2, “We caution against chasing dollar strength; instead, we recommend selling on dollar upside. Potential to boost yields. The dollar’s sharp gains came in two phases, with the U.S. dollar index, which measures the greenback’s value relative to a basket of world currencies, rising by about 4%. Stocks surged for a second time after Donald Trump won the election – rising another 3% as investors bet on his promised growth-focused policies. UBS believes that the market has already factored in most of the positive news for the dollar, while investors have largely ignored most of the risks associated with the trade tariffs advocated by the incoming U.S. administration. The investment bank believes that in the long term, Trump will. Trade tariffs and restrictive immigration policies may have a negative impact on U.S. economic growth, and interest rates are expected to fall accordingly. “While there are many reports about U.S. tariffs, possible retaliatory measures by affected countries have not yet become a reality.” Headlines. “We say this against the backdrop of the dollar’s unusually high valuation on a trade-weighted basis. “We believe this allows us to sell the dollar on any additional surge rather than add to long positions. In other words, we believe there is value in the contrarian bias for most currency pairs,” the bank strategist added road. London-based Longview Economics agreed, saying investor optimism about the dollar could reach unsustainable levels. Chris Watling, founder and chief market strategist at Longview Economics, noted that dollar sentiment “is currently at extreme (bullish) levels, while U.S. consumer confidence in the stock market outlook hit a 40-year high last week.” Watling pointed to defensive currencies such as the Swiss franc as potentially attractive alternatives that investors could use to hedge or short the U.S. dollar. Short selling occurs when an investor bets that the price of an asset will fall. UBS recommends selling when the euro falls below $1.05, the pound falls below $1.25, and the Australian dollar falls below $0.63. The bank also expressed its preference to buy Swiss francs above 0.90 against the US dollar. If the dollar weakens, not all currencies will benefit equally. UBS specifically warned against currencies with higher export risks to the United States, such as the Canadian dollar and the Mexican peso. “The story is different for currencies with higher export risks to the U.S., such as the Canadian dollar and Mexican peso, or currencies where tariffs could spike, such as China,” the bank said. “Here, we simply hedge the FX risk.”
