USD:

  • Market expectations for a Federal Reserve policy rate change in June are uncertain, with a 40% chance seen for an unchanged rate and a 60% chance for a rate cut.
  • Anticipation is that the Fed will guide market expectations more clearly as the June meeting approaches.
  • The upcoming CPI data are key to understanding potential rate moves.
  • UBS expects a rate cut in June, which could limit the current USD strength against the euro, pound, and other currencies, although the risk remains for continued dollar strength if the Fed does not cut rates.

EUR:

  • The next ECB meeting is not expected to be decisive, but there's a growing possibility of more concrete signals about a June rate cut.
  • Option implied volatility is at extreme lows, making it cheaper to hedge against potential market moves.
  • UBS anticipates the EURUSD might first drop within the 1.05–1.10 range before eventually rising, with a clearer ECB signal on rate cuts potentially injecting more activity into the market.

CHF:

  • Despite the Swiss franc's strong momentum indicating further depreciation, fundamental factors suggest a potential sideways trend or appreciation against the USD.
  • Short to medium-term expectations are for EURCHF and USDCHF to rise further, with a potential falter as more clarity on Fed and ECB rate cuts emerges.
  • The current wide yield differential between the EUR and CHF is expected to narrow, which could temporarily boost EURCHF towards 1.00 but eventually lead to a decline in both EURCHF and USDCHF pairs.

GBP:

  • GBPUSD saw fluctuations in March, ending back where it started after initially rallying due to the UK government’s budget decisions and dovish Bank of England signals.
  • Current level of 1.26 for GBPUSD is seen as fair, with expectations of an upward trajectory reaching 1.30 by the end of the year.

JPY:

  • With minimal major economic data from Japan expected, USDJPY will likely be influenced by US inflation data and FOMC meeting minutes.
  • Markets are alert for a potential FX intervention by Japanese officials if USDJPY breaks out significantly.
  • Despite the potential for higher exchange rates due to elevated US rates, UBS prefers selling upside risk, anticipating more balanced Fed rate cut expectations and considering crowded short positions in yen and the Bank of Japan’s stance on yen weakness.