UBS raises its fair value estimate for euro-dollar pair amid declining US yields

UBS experts have revised their short-term fair value estimate for the euro-dollar pair to 1.08, up from the previous 1.06. This adjustment follows a decline in nominal yields on 2-year and real yields on 10-year Treasury bonds, which reacted to mixed data on the state of the US economy.

The current trading level of the euro-dollar pair, around 1.09, reflects the EU currency trading at a premium to its fair value. This marks a shift from the beginning of 2025, when the pair consistently traded at a discount, according to the organization.

As UBS strategists point out, the premium to the euro-dollar pair's fair value is not historically significant. However, economic instability in the US could lead to increased capital outflows from the country to the European Union and other regions.

Nevertheless, according to the organization's experts, such asset reallocation could take considerable time. In the short term, a corrective pullback in the currency pair is possible.