UBS analysts believe tariff concerns—especially involving Colombia—could drive the U.S. dollar higher. They point to stronger U.S. economic growth and diverging monetary policies as key reasons for this expected strength.

As part of their currency strategy, UBS recommends going long on the Australian Dollar against the New Zealand Dollar (AUD/NZD) and shorting the Swiss Franc against the Norwegian Krone (CHF/NOK). While recent market shifts have lowered option volatility, they still see attractive yield opportunities in British Pound (GBP) and Japanese Yen (JPY) trades.

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UBS noted that since Trump’s presidency, a softer tariff stance helped slow the U.S. dollar’s rise. During that period, pro-growth currencies like the British Pound (GBP) and Swedish Krona (SEK) gained value, while emerging market currencies also strengthened against the dollar. However, commodity-linked currencies such as the Mexican Peso (MXN) and South African Rand (ZAR) have struggled.

Meanwhile, safe-haven currencies like the Swiss Franc (CHF) and Japanese Yen (JPY) have stayed strong, partly due to market concerns about DeepSeek’s AI advancements disrupting U.S. tech dominance. These worries have affected tech stocks and, in turn, currency markets.

UBS believes that while speculative long positions in the USD have declined since the presidential inauguration, tariff-related volatility isn’t over. They warn that investors may have pulled back too soon, expecting more swings in exchange rates in the coming months.

Despite these fluctuations, UBS remains bullish on the U.S. dollar in the short term. They emphasize that the gap between U.S. and European economic growth has fueled the dollar’s strength against the Euro (EUR/USD), and they don’t see this trend reversing in the first half of 2025.