UBS told clients that buying the dollar on dips is justified amid high energy prices and the ongoing AI narrative.
UBS informed clients that buying US dollars on dips remains the correct approach. This view persists against the backdrop of high energy prices and ongoing investment interest in artificial intelligence.
Bank strategist Shahab Jalinus described the past week as relatively calm for G10 currencies. The yield spread on 10-year bonds between France and Germany stabilized around 140 basis points. This level remains uncomfortable for France and supports a negative view on the euro.
UBS expects a test of the Q4 range low for the euro at 1.1050. At the same time, the year-end 2026 target remains at 1.1200.
Jalinus pointed to preliminary signs of stabilization in diesel prices, which could provide some support to the euro. However, Europe remains vulnerable: inventories are at low levels, and gas futures have updated their cycle highs.
Recent weakness in technology sector stocks and weaker inflation data may contribute to dollar consolidation and lower expectations for policy tightening. Nevertheless, the bank's baseline view has not changed: buying the dollar on dips is justified as long as energy prices are high and the AI narrative persists.
Regarding commodity currencies, UBS notes a consolidation regime for the Australian, New Zealand, and Canadian dollars. Limited rate pricing leaves them positioned to recover September losses. The Canadian dollar is viewed as the preferred tactical long position.
Jalinus also rejected the assumption that Japanese sales of French debt would lead to euro strengthening, citing balance of payments data.