UBS AG (UBSN)’s asset management business favors the euro and the U.S. dollar as easing financial and political risks in the 17-nation region and employment gains in the world’s biggest economy support the two currencies.
“The focus on getting rid of currency risk, particularly euro-related risk, has decreased massively recently,” Jose Blanco, Zurich-based regional chief investment officer for Europe, Middle East and Africa at UBS Global Asset Management, said in a July 5 phone interview. “The level of fear of the euro has abated a bit.” Europe’s shared currency and the greenback are “attractive,” said Blanco, who is part of a team managing almost 100 billion Swiss francs ($103.6 billion).
The dollar has climbed 8.1 percent this year, the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid bets the Federal Reserve will start paring back stimulus measures after data last week showed a larger-than-expected increase in U.S. payrolls.
The euro had the second-biggest gain, rising 4.7 percent since Dec. 31, as Greek officials work toward reaching an accord with international creditors to keep bailout funds flowing to the country. The currency also held its advance after Portugal’s 10-year bond yield retreated from a seven-month high, as Prime Minister Pedro Passos forged an agreement with coalition partner CDS to hold the government together and avoid early elections.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus currencies of six major U.S. trade partners including the euro and yen, touched a three-year high of 84.588 before trading at 84.467 as of 7:21 a.m. in London. The euro was little changed at $1.2825 from $1.2829 on July 5 and traded at 129.57 yen, up 13 percent this year.
UBS is “slightly underweight” on the franc and sees potential for the currency to weaken toward 1.30 per euro in coming weeks or months, according to Blanco. “In a situation where risks are easing, the appeal of the Swiss franc as a haven is losing its glimmer,” he said.
The Swiss currency lost 2.5 percent this year to 1.2380 per euro, set for its first annual decline since 2007. It earlier reached 1.2388, the weakest since June 10. It will probably slide to 1.25 per euro by Dec. 31, according to the median estimate of economists surveyed by Bloomberg. A separate poll predicted it will weaken to 98 centimes per dollar by year-end, compared with 96.51 today.
UBS is “underweight” on the Australian dollar amid expectations global growth will remain subdued and weakening demand for commodities, according to Blanco. Expansion in China, the South Pacific nation’s biggest trading partner, will also struggle to rebound in coming quarters, he said.
The Aussie has tumbled 13 percent this year to 90.48 U.S. cents, the biggest decline after the Japanese yen and South African rand among 16 major peers. Canadian Imperial Bank of Commerce, the top forecaster for the currency, sees it falling another 4 percent to 87 U.S. cents by the end of this quarter.
“The Australian dollar has some room to depreciate a bit,” Blanco said. “We think it should be valued about 10 percent below the current levels, around 80 to 85 cents, to put it more in line with fundamentals. That’s the kind of move we’ll have to see before we consider changing our views.”
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