UBS recommends long EUR/USD trade after Fed rate hike

UBS ↗ 0.14% is recommending investors go long on EUR/USD at current levels around 1.1475, setting a target of 1.17 with a stop-loss at 1.13, citing central bank dynamics as the primary rationale for the trade.investing

The Swiss bank first flagged a long EUR/USD opportunity in mid-July with the same 1.17 target and 1.13 stop-loss. When the pair reached that level, UBS raised its target to 1.20 and moved the stop-loss to 1.15. However, the pair hit the revised stop-loss this week, closing out the position. UBS now views the pullback as a fresh entry point, re-establishing the original trade parameters.investing

Fed Rate Hike Reshapes the Landscape

The recommendation arrives days after the Federal Reserve raised interest rates for the first time in more than three years, lifting its benchmark lending rate by a quarter point to a range of 3.75%–4.00%. The unanimous decision, led by Fed Chair Kevin Warsh, was aimed at combating inflation that has picked up amid geopolitical tensions. Policymakers projected one additional hike before the end of 2026, with no further increases expected in 2027.cnn+2

The rate hike has strengthened the dollar in recent sessions, contributing to the euro's slide from its 2026 highs. Analysts at The Times noted that Warsh's move has sparked expectations of a broader worldwide trend of tightening cycles, a shift that could weigh on risk sentiment but also create opportunities in currency markets.thetimes

Diverging Views on the Euro's Path

UBS's bullish euro call sits against a mixed backdrop of forecasts. Earlier this summer, UBS itself had turned more bearish on the euro, lowering its end-2026 EUR/USD forecast to 1.12 in late June on expectations of dollar strength. The bank subsequently raised its target to 1.20 in August, citing expected Fed-ECB policy divergence. The latest trade recommendation suggests UBS sees near-term upside even as the longer-term picture remains uncertain.finance.yahoo+1

Other forecasters see the pair trading in a range. Key Currency projects EUR/USD between 1.15 and 1.19 over the next three months, while forex.com noted that near-term risks are tilted to the downside given renewed dollar support.keycurrency+1

For now, UBS's trade is a bet that the euro's pullback has been overdone and that central bank dynamics — particularly any pause in further Fed tightening — will allow the single currency to recover toward 1.17.investing