Pro-growth currencies have struggled recently, but upcoming economic data and central bank meetings are expected to limit further gains in the dollar, UBS noted, providing insight into recent moves in the currency market.

UBS’s comment comes after the US dollar (DXY index) rebounded after failing to break above the 100 level.

Analysts noted that the decline in the value of the US dollar has slowed down this week, which is due to several factors, including: the intensifying conflict in the Middle East, the upcoming US presidential elections and weaker economic indicators from Europe. These elements provided support for the USD, suggesting that its recent weakness may have been exaggerated.

UBS predicts that the market will closely monitor European economic data such as retail sales, German manufacturing orders and industrial production in the coming week. Particular attention will be paid to UK economic indicators, including data on industrial production, trade and employment, as well as potential guidance from the Bank of England on faster interest rate cuts.

In the United States, attention will focus on the labor market report published on Friday and inflation data for September. UBS suggests that if other major economies are a guide, there may be less risk to US inflation data, strengthening expectations for a US interest rate cut and potentially putting pressure on the dollar.

Additionally, UBS commented on the expected actions of other central banks. The Reserve Bank of New Zealand (RBNZ) is expected to cut its key interest rate by 50 basis points in response to recent opinion polls pointing to potential softness in the economy. The move is already priced into market prices, but the New Zealand dollar (NZD) is expected to perform weakly due to expected continued tender domestic data. As a result, UBS favors the Australian dollar (AUD) over NZD.

Finally, UBS noted that while emerging market currencies had a tender start to October, they had previously posted gains since slow July. The Mexican peso has been highlighted for its strength following market-friendly comments from newly sworn-in President Claudia Sheinbaum. In turn, Israel is under pressure due to the escalation of the conflict in the Middle East, and the Bank of Israel is expected to maintain its key interest rate at the upcoming meeting.

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