Investing.com – The U.S. dollar is gaining in value as the U.S. presidential election approaches, UBS noted, and market odds of Republican Party candidate Donald Trump winning enhance.

A modern positive factor for the USD last week was media reports of slightly better prospects for Donald Trump in the latest polls, as outcomes enabling policies such as more aggressive tariffs are seen as more positive for the USD.

“The improved chances of a Trump presidency are likely to come from a stronger dollar in the near future,” UBS analysts said in an Oct. 16 note.

Where does this leave us now in terms of our views on USD?

Our expected price ranges between September and December 2024 take into account the possibility of a significant USD rebound between now and the end of the year, even if our year-end forecasts predict a slightly lower USD rate compared to current levels.

Last week, with our year-end outlook in mind, we entered a reverse knockout with a long call, but we are not yet willing to make a similar trade for i .

The spot position is still far enough away from our extreme ranges, and the high JPY implied volatility and negative carry make long JPY positions unattractive this close to the US election.

Coming back to this week’s ECB meeting, the market is very confident that there will be another 25 bp interest rate cut, and we have no powerful reasons to disagree with this.

Market expectations are very muted for any form of surprise and the risk reversal is bidding for the EUR again, indicating a market that is already primed for the risk of a weakening EUR.

Given that market prices are in line with our economists’ expectations for final interest rates, we view EUR/USD as more exposed to US developments in the near future, which makes us reluctant to extinguish the recent weakness solely for ECB reasons.

At 06:30 ET (10:30 GMT), EUR/USD rose 0.1% to 1.0894, USD/JPY gained 0.1% to 149.34 and AUD/USD fell 0.2% to 0 .6685.