UOB: It is expected that the USD/HKD will continue to hover near the upper limit in the short term

Zhitong
2025.06.11 06:10
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UOB expects that if liquidity in Hong Kong remains ample, the USD/HKD exchange rate will hover near the upper limit in the short term. The bank believes that the Federal Reserve will begin a loosening cycle, maintaining a downward trend for the US dollar index. It forecasts the US dollar index to be 98.4 by the end of 2025 and 96.5 by the end of the second quarter of 2026. Trump's tariff threats may lead to capital withdrawal from US assets, but as tariff risks diminish, the market will refocus on monetary policy

According to Zhitong Finance APP, Li Guoji, the head of Global Finance for Greater China at UOB, stated that despite recent significant fluctuations in exchange rates, if liquidity in Hong Kong remains ample, the USD/HKD exchange rate may still hover near the upper limit in the short term. Therefore, the bank's latest forecast for the USD/HKD exchange rate from Q3 2025 to Q2 2026 is 7.84, 7.82, 7.80, and 7.80, respectively.

Li added that considerations of monetary policy and the reallocation of assets away from the U.S. are both factors that are bearish for the dollar, but the former will gradually replace the latter as the dominant factor, potentially slowing the pace of the dollar's decline. The bank also noted that the net short positions in U.S. dollar futures in the G-10 markets may have peaked in the short term. Overall, the bank maintains its view of a downward trend for the dollar index, with the latest forecast being 98.4 by the end of 2025 and 96.5 by the end of Q2 2026.

The bank indicated that in Q2 2025, repeated tariff threats from Trump led to capital withdrawal from U.S. assets, and the subsequent cooling of tariff conflicts may alleviate the pressure of capital outflow. The bank pointed out that Q3 will be a critical period, as U.S. tariffs remain highly uncertain. If Trump intends to reinstate the extremely high tariff levels from April, he will face significant obstacles.

Additionally, the Trump administration is currently facing legal challenges that limit its power to impose additional tariffs. It is expected that in the second half of 2025, the global trade war will gradually cool down, and the trend of capital withdrawal from U.S. assets may slow, thereby reducing downward pressure on the dollar.

The bank mentioned that as tariff risks diminish, market focus will shift back to monetary policy. The bank expects the Federal Reserve to cut rates by 25 basis points at the Federal Open Market Committee meetings in September, October, and December. The bank anticipates that the Federal Reserve will restart its easing cycle after pausing rate hikes for nine months, while other G10 central banks will gradually end their easing policies, which will help narrow the dollar interest rate spread and exert downward pressure on the dollar

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