Financial giant UBS highlighted potential risks to the U.S. dollar on Monday, suggesting that investors reassess their exposure. The UBS Chief Investment Office (CIO) anticipates a further decline in the dollar over the medium term due to narrowing interest rate advantages and concerns about the U.S. fiscal deficit. UBS stated:

We expect the greenback to continue to depreciate.

The team noted the U.S. dollar’s 5% drop in the U.S. Dollar Index (DXY) since its peak in June. UBS also believes post-election scrutiny on the U.S. fiscal situation could further weaken the currency.

Investors with large unhedged U.S. assets may need to adapt their portfolios, the UBS team recommended. Strategies like hedging U.S. positions through currency futures, swaps, or using hedged share classes were suggested. Additionally, “gold can be an effective diversifier,” according to the CIO, with expectations for rising prices amid lower interest rates and ongoing geopolitical uncertainty.

UBS further explained the potential for the Swiss franc to strengthen further, particularly against the U.S. dollar, driven by limited rate cuts from the Swiss National Bank and geopolitical tensions. The team concluded:

Investors should reduce their USD holdings as the currency is likely to weaken further over the medium term.

“We like the Swiss franc, the euro, the British pound, and the Australian dollar. We also recommend an allocation to gold of up to 5% within a balanced USD portfolio,” UBS added.

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