UBS forecast two US Federal Reserve interest-rate hikes in 2026, according to Investing.com, a call that follows a stronger-than-expected US jobs report. The forecast marks a notable shift for a market that had spent much of the year positioned for further rate cuts.
The dollar, however, moved in the opposite direction of what a hawkish rate call might suggest: sterling edged up as the dollar stayed soft on the back of the same rate-hike bets. That split reaction points to a market still working out how to price a scenario where a strong labor market forces the Fed to reverse course toward hikes rather than continue cutting.
Separately, Eurozone gross domestic product grew 0.6% quarter-on-quarter in the second quarter, according to Eurostat, giving investors another data point on how the major developed economies are diverging heading into the back half of the year. It remains unresolved whether other banks will follow UBS in forecasting hikes, or whether upcoming data will undercut the case for a reversal.