UBS Prefers GBP, AUD, and CHF; Neutral on JPY, Bearish on CNY

UBS has a positive outlook for the British pound (GBP), Australian dollar (AUD), and Swiss franc (CHF) within the G10 currency group. The financial services firm cites high interest rates and gradual monetary easing expectations in the UK and Australia as reasons for its favorable views on GBP and AUD.

UBS expects GBP/USD and AUD/USD exchange rates to rise to 1.35 and 0.68, respectively. The firm's stance on the Swiss franc is also optimistic, due to the limited capacity for the Swiss National Bank to further lower interest rates. UBS forecasts that the interest rate differentials with other G10 currencies will narrow by 2025, likely leading to increased inflows into CHF, with the USD/CHF exchange rate expected to fall to 0.84.

The Japanese yen (JPY) is viewed as a neutral position from UBS's perspective. Although a rise in USD/JPY towards 155 is seen as possible in the short term, particularly if U.S. bond yields increase, UBS predicts a drop to 145 by the end of 2025 in the medium term.

This expectation is based on the current USD/JPY levels being higher than suggested by yield differentials, predictions of narrowing U.S.-Japan yield spreads, and political factors. Notably, President-elect Trump's past criticisms of the weak yen and Japanese policymakers' desire to prevent further depreciation of the yen may lead to a mutually beneficial strong yen.

Conversely, UBS holds a less favorable view on the Chinese yuan (CNY) and anticipates a rise in the USD/CNY exchange rate to 7.50 by the end of 2025.

The anticipated increase is attributed to the potential escalation of U.S.-China trade tensions and the hawkish stance of Robert Lighthizer, who is expected to be appointed as U.S. Trade Representative regarding trade with China. Despite efforts by the People's Bank of China to stabilize the yuan by managing its daily fixing rate, UBS warns of significant risks for further depreciation of the yuan.