After two years of US dominance, economic indicators have reached a point where the tight restrictive monetary policy no longer seems justified. As a result, the US Federal Reserve has lowered the key interest rate, and "we expect the central bank to bring lending costs closer to a neutral level in the coming quarters," according to analysts at UBS, the largest financial holding in Switzerland.
Falling rates in the US are likely to undermine one of the key drivers of the dollar. In recent years, the fact that the dollar’s key interest rate led the G10 countries and was even higher than those in some emerging markets allowed the United States to finance its twin deficits. However, the current decline in yields is expected to lead to a partial weakening of the US Dollar Index (DXY).
"We expect the US dollar to weaken over the next 12 months," say UBS economists. In their view, "the most attractive alternatives to the US dollar can be found in the Swiss franc, British pound, and Australian dollar." Switzerland has some of the lowest interest rates in the world, meaning it has less need for cuts within the global easing cycle. "We expect USD/CHF to trade at 0.80 in Q3 2025," UBS forecasts.
"Similarly, the yields in the UK and Australia, currently the highest in the G10, are likely to remain elevated, gaining ground against the US dollar," UBS notes. "In the absence of a recession and with ongoing risks, the British pound and Australian dollar should receive steady support in 2025."