UBS sees promising potential in select emerging market currencies, even as the U.S. dollar has recently strengthened, according to a research note from the investment bank.
The report notes that emerging market currencies have stalled in their advance since early July due to the dollar’s gains. Nevertheless, UBS maintains a positive outlook, pointing to anticipated Federal Reserve rate cuts and the attractive yields offered by several emerging markets.
The bank identified the Brazilian real, Mexican peso, Indian rupee, South African rand, and Egyptian pound as particularly noteworthy for investors seeking diversified currency exposure. UBS also highlighted that selling USD upside against currencies like USD/ZAR and USD/ILS could be a strategy to enhance returns.
Geopolitical tensions remain elevated, UBS said, and are likely to continue influencing global markets. The firm also noted that the effect of U.S. tariffs on the dollar will hinge on future policy decisions from both the administration and the Federal Reserve.
UBS’s base case scenario expects that the trade conflict will weigh on the U.S. economy in the coming quarters, potentially leading the Fed to cut interest rates. This would likely weaken the dollar and support carry trades, though the bank cautioned that sudden dollar shifts or unexpected policy moves could challenge pro-cyclical currencies.
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