Is it time to short the dollar?

The U.S. dollar has risen since September, but some financial institutions are suggesting that investors trade against further strength in the greenback. Investment bank UBS is taking the opposite stance, warning investors not to chase the dollar’s last gains.

“We are warning against chasing the dollar’s strength; instead, we suggest selling the dollar’s ​​upside potential in exchange for higher yields,” UBS Wealth Management strategists led by Dominic Schneider said in a note to clients on Dec. 2.

The dollar’s ​​dramatic rise consisted of two stage.

The U.S. dollar index, which measures the greenback against a basket of world currencies, rose about 4% from late September to November as economic data showed the U.S. outperforming other major economies. The second rise — another 3% — followed Donald Trump’s election victory, as investors bet on his promises of growth-oriented policies.

However, UBS said markets had already priced in most of the positive news for the dollar, while investors were essentially ignoring much of the risk associated with trade tariffs advocated by the new U.S. administration. The investment bank believes that Trump’s policies on trade tariffs and restricted immigration are likely to be negative for US economic growth in the long term, with lower interest rates expected in the future.

“While there is a lot of talk about US tariffs, possible retaliation from affected countries is not yet in the headlines,” UBS said in a research note. “We say this against the backdrop of the extremely high valuation of the dollar in trade-weighted terms.” “This makes the dollar a sell currency for us on any further gains, rather than adding to long positions. In other words, we see value in the opposition position for most currency pairs,” the bank’s strategists added.

London-based Longview Economics supported this view, suggesting that investor optimism about the dollar may have reached levels that are unsustainable. Sentiment toward the dollar “is currently at extreme (bullish) levels, while American consumer confidence about the stock market outlook hit a 40-year high just last week,” Chris Watling, founder and chief market strategist at Longview Economics, noted in a note to clients.

Watling cited reserve currencies such as the Swiss franc as potentially attractive alternatives that investors could use to hedge or sell the dollar. Short selling occurs when an investor is trading an expected decline in the price of an asset.

UBS suggested selling the dollar against the euro if it falls below $1.05, against the British pound if it falls below $1.25, and against the Australian dollar if it falls below $0.63. The bank also said it prefers to buy the Swiss franc at levels above 0.90 against the dollar. Not all currencies are equally positioned to benefit if the dollar weakens. UBS specifically warned about currencies with high export exposure to the United States, such as the Canadian dollar and the Mexican peso. “The same cannot be said for currencies with high export exposure to the United States, such as the CAD and MXN, or where tariffs could increase, as in the case of China,” the bank said. “Here we will simply hedge the currency risks.”