Investing.com – The dollar recently hit fresh year-to-date highs against its rivals and is likely to remain robust after the Federal Reserve adopted a more hawkish stance at its recent December meeting, UBS analysts said in a recent note.

“While we continue to expect the dollar to decline given these factors, we now see less weakness in 2025 and are slightly revising our forecasts,” UBS analysts said in a recent note.

The less bearish stance on the dollar comes after the greenback set fresh year-to-date highs for key exchange rates and expectations for fewer U.S. interest rate cuts.

“The USD has been recently impacted by the prospect of smaller Fed rate cuts and tariff risks,” analysts said.

The euro has been particularly affected by the dollar’s strength, but analysts predict that it will be around $1.05 against the dollar in the first half of 2025.

However, a significant decline towards parity cannot be ruled out for countries “due to real tariff threats or further divergences in the macroeconomic context between the United States and Europe,” the analysts added.

However, analysts say any move towards parity is expected to be short-lived amid expectations that the economic situation in Europe will improve in the second half of the year, narrowing the gap between yields in Europe and the US.

“The trajectory back to the middle of the trading range or higher, 1.08 to 1.10, is driven by the view that the two-year yield spread will continue to narrow to some extent, and better macro data from Europe will provide some fundamental support for EURUSD in the second mid-2025, analysts said.