The euro’s rally against the dollar may be entering its “last stage,” and investors would likely benefit from selling the 16-nation currency against the greenback, UBS AG said. The euro is set to weaken toward $1.30, analysts led by Mansoor Mohi-uddin, Zurich-based chief currency strategist at the world’s second-biggest foreign-exchange trader, wrote in a note to clients yesterday. The analysts reiterated forecasts for the euro to trade at $1.40 in one month’s time and weaken to $1.30 in three months. “We remain positive on the U.S. dollar and think that the greenback is likely in its final stage of weakness,” the analysts wrote. “Equity and bond flows have the potential to surprise and could lend support to the dollar.” The dollar traded at $1.4168 per euro as of 12:33 p.m. in Tokyo. It has lost 6.3 percent against the single currency in the past month and traded as low as $1.4246 per euro yesterday, the weakest this year. The difference in yield, or spread, between 10-year Treasuries and similar maturity European bonds is moving in favor of the U.S. dollar and these levels have attracted capital to U.S. assets in the past, the analysts said. Ten-year Treasury yields surged the most in eight months yesterday as stocks and commodities advanced on optimism the global recession is receding, damping demand for the safety of government debt. Ten-year yields have risen 1.61 percentage points since falling to a record low of 2.03 percent last year. “The sell-off in Treasuries will be a stabilizer, rewarding domestic and international investors with a higher yield,” the analysts wrote. Equity-related flows into the U.S. rose to $770 million last week, from $490 million in the previous week, according to UBS data.

Source