On Tuesday, UBS projected a volatile period ahead for the currency pair, with expectations of a gradual rise above 1.10 and toward 1.16 by 2025.

“The US election poses a short-term risk to our view. Nevertheless, we still think EURUSD should gravitate to 1.16 in 2025. Investmentwise, we recommend selling bouts of USD strength, especially in the case of a Trump victory,” said the firm in a note.

After experiencing weakness in August and September, the US dollar has made a comeback in October, UBS highlighted. This resurgence was influenced by a stronger-than-expected US labor market report and robust US PMI data. Conversely, the European Central Bank (ECB) cut rates in response to lower-than-anticipated European inflation, as evidenced by the decision in last week’s meeting.

Looking forward, UBS anticipates a bumpy road for the currency pair, with the upcoming US labor market reports being a key determinant for the Federal Reserve’s future actions. However, the interpretation of these reports may be complicated by the recent hurricane Milton, according to the analysts. Additionally, the upcoming US election could inject further volatility into the market, especially with the possibility of an unclear outcome.

Despite the potential for initial dollar strength following a Trump election win, UBS does not view a second Trump administration as unequivocally positive for the USD. The firm suggests that tariffs could harm US GDP and consumers more than they affect the rest of the world, advising investors to take advantage of any such periods of USD strength.

In Europe, UBS maintains a positive outlook, anticipating a growth recovery leading into 2025. They also believe that the current pessimistic sentiment means any positive economic data from Europe could have a significant impact on the euro. The firm remains consistent with their forecast that the EUR/USD will ascend above 1.10 in the forthcoming weeks, maintaining a target of 1.16 for later in 2025.

For investors, UBS sees the recent dip below 1.10 as an opportunity to reduce USD exposure. The firm identifies the next support level at around 1.08, with resistance likely at 1.12 and 1.15. While acknowledging risks, including those associated with the US election, UBS suggests there is a greater chance of the exchange rate climbing rather than falling.

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