US dollar set to fall further as gold rally expected to resume
The US dollar is set to continue falling against other major currencies such as the pound, despite stabilising in recent days, while gold is expected to resume its record rally, UBS analysts have said.
The DXY index, which tracks the dollar’s performance against a basket of currencies, fell sharply at the start of April following the unveiling of US president Donald Trump’s sweeping tariffs.
Sterling has been on a constant run against the dollar since the start of 2025, rising from $1.24 to $1.34, a seven per cent jump.
The dollar has since stabilised in the second half of the month, as Trump instituted a 90-day pause on tariffs and said he was looking to pursue trade deals.
UBS analysts expect this trend to continue in the short term, as fears over the firing of Federal Reserve chair Jerome Powell dissipate and the president backs away from many of his most radical trade tax policies.
“While March US jobs data from the JOLTS survey showed the smallest number of monthly openings since January 2021, declining layoffs in the same release suggest that the total labour market picture, including April’s nonfarm payrolls data due Friday, will show a generally resilient jobs market whose weakening is gradual at most,” said Mark Haefele, global wealth management CIO at UBS.
However, in the medium term, dollar weakness is likely to resume, he said, thanks in part to the US debt-to-GDP ratio sitting at a staggering 123 per cent.
In addition, as sentiment indicators are starting to reflect a deterioration in future output, suggesting a build-up of negative sentiment in the economy, the currency is likely to weaken further.
Investors have been moving away from the greenback as it loses its traditional ‘safe haven’ status, as the volatility of the Trump administration threatens its stability.
UBS recommended switching dollar allocation from currencies such as the Japanese yen, euro, British pound, and Australian dollar, as well as selling the risk of a rising dollar for yield pickup.
Meanwhile, the Swiss bank continued to throw its weight behind gold, noting that while it had traded flat in the second half of April, instability was likely to return as Trump’s 90-day deadline approaches.
The precious metal managed to break the “psychological” $3,500 barrier during the tariff turbulence, but has since retreated back to $3,300.
With continued buying from central banks and insurers, the UBS CIO said that the metal “should stay well-supported by ‘safe haven’ demand and structural buying”, and held its price target of $3,500.
“Gold… remains an effective portfolio diversifier and hedge, and we recommend around a five per cent allocation to the precious metal as part of a balanced and well-diversified portfolio,” added Haefele.