UBS revises up euro/dollar, bond yield forecasts

The logo of Swiss bank UBS is seen at a branch office in Basel, Switzerland March 29, 2017. REUTERS/Arnd Wiegmann

LONDON (Reuters) - UBS has revised up its expectations for how much the euro will strengthen against the dollar, saying on Thursday it now expects the single currency to trade at $1.30 by the end of 2018 as the market prices in stronger global growth.

Previously, the Swiss investment bank believed the single currency would close the year at $1.25. The euro has already crossed that threshold this year, though it was trading slightly under it on Thursday, at $1.2437 EUR=.

The bank also revised up its forecasts for key bond yields. It believes Germany's 10-year bond yield will be 1 percent by end of 2018 now, compared to its previous forecast of 0.90 percent and current trading levels 0.71 percent. DE10YT=RR

“What has surprised us is the speed of the market moves. This extraordinary speed is a result of strong growth momentum keeping financial conditions easy. On the back of this growth momentum, our Economics team have revised their growth views across regions,” UBS strategists said in a note.

UBS also now believes sterling will end 2018 at $1.37 GBP=D3, versus expectations of $1.32 previously, but down from its current levels of around $1.42.

The Swiss bank also believes the dollar will trade at 117 yen at the end of the year compared to its previous forecast of 122 yen JPY=.

UBS also revised its 10-year U.S. Treasury yield forecast upwards, and now expects it to be 2.90 percent by the end of 2018 as against its previous forecast of 2.70 percent. The U.S. 10-year Treasury yield was at 2.74 percent on Thursday. US10YT=RR

Reporting by Abhinav Ramnarayan; Editing by Jemima Kelly