Investing.com – UBS lowered its long-term targets for the U.S. dollar, hoping the currency’s recovery will fade in early September.

At 08:45 ET (12:45 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was down 0.1% at 101.655, after rising to a two-week high of 101.79 earlier in the week.

rose 0.1% to 1.1048, after the pair fell to a two-week low earlier this week.

Analysts at the Swiss bank said in a Sept. 4 note that the piercing decline on Wall Street on Tuesday did not ease market concerns about negative seasonal patterns in September over the past decade.

U.S. payrolls data for August is due out on Friday, bringing back memories of markets’ stinging reaction to faint July payrolls in early August and the subsequent slump that sent the index soaring to 70.

The move also coincided with a classic raise in carry and beta trading in the FX market, with the JPY and CHF outperforming and the AUD underperforming the USD despite offering less carry at the time.

“However, the difference now is that while the VIX fell to 15 in late August, implied currency volatility in classic carry pairs remained relatively high and signs of new position building were limited,” UBS added.

“We suspect this means any potential run-up in the currency market will be more limited this time around, even if weak US data again leads to significant weakness in equities and lower US interest rates.”

As such, while the USD could also see a short-term bounce due to its own positive seasonal patterns following the piercing sell-off in July and August, “we would expect this to be corrective rather than sustained in the G10 space, and more likely to be a function of US data beating expectations rather than the result of a ‘risk-off’ setback.”

As a result, the Swiss bank is using this opportunity to further lower its USD forecasts for the end of 2024 and 2025 and recommends using the correction we expect this month to prepare for further structural USD weakening later on.

“Specifically, we forecast EUR/USD to trade at 1.12 by year-end and 1.15 by year-end 2025, with the primary reason for the revision being a decline in ‘US exceptionalism’ rather than renewed enthusiasm for the EUR,” UBS said.

“We remain bearish on the EUR in most other cross pairs. We argue that political risk in both the US and Europe is unlikely to be a key factor until there is much greater clarity, leaving traditional macroeconomics to play a role.”