UBS advises reducing USD holdings amid anticipated decline

UBS, a global financial services giant, has advised investors to reduce their U.S. dollar holdings, citing expectations of further depreciation.

UBS, which stands for Union Bank of Switzerland, is one of the world’s largest and most respected financial institutions, offering investment banking, wealth management, and asset management services.

The bank’s Chief Investment Office (CIO) predicts the U.S. dollar will continue to weaken over the medium term due to diminishing interest rate advantages and a rising U.S. fiscal deficit.

The U.S. Dollar Index (DXY) has already dropped 5% since June, intensifying concerns about the dollar's trajectory.

In light of these developments, UBS recommends that investors reevaluate their portfolios, particularly those with large unhedged U.S. assets.

The bank suggests adopting strategies such as currency hedging using futures, swaps, or hedged share classes to protect against further declines.

Additionally, UBS emphasises the importance of diversifying into other currencies and assets to mitigate risk.

UBS also pointed to gold as a key asset in this environment, stating, "Gold can be an effective diversifier," and recommended an allocation of up to 5% in a balanced USD portfolio.

With rising geopolitical uncertainties and expectations of lower interest rates, gold may offer investors a safer option during periods of currency volatility.

The Swiss franc, along with currencies like the euro, British pound, and Australian dollar, are also recommended as alternatives to the U.S. dollar.

UBS anticipates that the Swiss franc, in particular, will strengthen against the U.S. dollar due to limited rate cuts from the Swiss National Bank and ongoing global tensions.