Daily Europe

17 August 2026, 04:30 UTC Chief Investment Office GWM Investment Research

Positioning beyond US dollar resilience UBS House View - Daily Europe Mark Haefele, Global Wealth Management Chief Investment Officer, UBS Switzerland AG Daisy Tseng, Strategist, UBS AG Singapore Branch Teck Leng Tan, CFA, Strategist, UBS AG Singapore Branch Themis Themistocleous, Head Chief Investment Office EMEA, UBS AG London Branch

From the studio What to watch: 17 August Podcast: Jump Start | FOMC minutes, and can the recent AI momentum • Canada July inflation continue? (5 mins) Video: The AI Show | China tech earnings update & what's next(3 mins) Video: Three reasons why we find Japanese equities attractive (6 mins)

Thought of the day The US dollar softened on Monday after data on Friday showed that US retail sales fell for the first time in nine months (more details below). This follows moderating inflation data last week, and markets have scaled back expectations for Federal Reserve interest rate hikes. Fed funds futures now point to a 30% probability of a September hike, down from 55% just over a week ago.

The US dollar may stay relatively supported in the near term by an ongoing hawkish Fed bias, in our view, as policymakers will likely require more evidence of softer US inflation data before dialing back on their hawkish rhetoric.

But we also expect the US dollar to soften further over time as fiscal concerns persist. Last week, the US government sold 30-year bonds at a yield of 5.216%, the highest since 2001 as investors demanded greater compensation to finance the country’s growing deficit. These fiscal headwinds, coupled with already elevated investor allocations to US dollar assets, remain structural headwinds for the US dollar. In addition, as US data moderate further in the coming months, we would expect Fed members to signal comfort with keeping policy rates unchanged, which should prompt a further decline in US yields and lead to broader USD weakening.

Against this backdrop, we think investors can position selectively through currencies and broad commodities to benefit from eventual dollar weakness.

High-yielding currencies can offer potential carry in a range-bound FX market. High-yielding currencies remain our strategy of choice in the current environment from a total return perspective. In Europe, we favor the British pound and the Norwegian krone, while in Asia Pacific, we prefer the Australian dollar and New Zealand dollar. These currencies also offer potential carry opportunities, supported by favorable interest-rate differentials. Separately, we think the Chinese yuan could continue to gain. Upcoming economic data from China may point to subdued domestic demand and a slowdown in export growth, but China’s annual trade surplus

This report has been prepared by UBS Switzerland AG, UBS AG Singapore Branch, UBS AG London Branch. Please see important disclaimers and disclosures at the end of the document.

(at around USD 1.2tr) provides scope for further yuan strength, as USD surpluses are being recycled into the CNY. We expect the USDCNY to move toward 6.50 by June next year.

Gold should stay supported by central bank demand and a steady Fed policy. We remain constructive on gold over the coming quarters, as central bank demand remains an important source of price support. In fact, given central banks’ long-term desire to reduce exposure to the US dollar, we estimate annual central bank purchases to remain elevated. Investment demand should also recover if, as we expect, the Fed softens its hawkish rhetoric. While we continue to see gold as a strategic portfolio diversifier, we also see opportunities to sell downside price risks in gold for yield pickup.

Broad commodities can benefit from USD weakness and supply-side risks. A weakening dollar also reinforces the appeal of broad commodities, and we believe fundamentals are supportive across the complex. The US National Oceanic and Atmospheric Administration last week forecast a nearly 70% chance that the developing Super El Niño will be the strongest such event on record. This should reintroduce a meaningful risk premium into agricultural commodities, as weather disruptions could tighten…