Investing.com – The US dollar has been in demand this week, with the recent streak of greenback weakness running out of steam. However, UBS cautions against going long the dollar going forward.

At 08:05 ET (12:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 101.642, just off the previous session’s six-week high.

The index is up nearly 1.5%, for the week, its strongest such performance since April.

“The US dollar has regained a bit of lost territory this week on the back of several factors: Geopolitical risks led to a flight to safety, some of the US labor market data leading up to the all-important nonfarm payrolls and unemployment report have been a touch better, and lower-than-expected European inflation have led markets to anticipate a 25bps European Central Bank cut in October,” analysts at UBS said in a note, dated Oct. 3. 

“If this undershooting trend extends to the US, the September inflation print could come very close to 2%.”

The Swiss bank says this is not its base case, but it cannot rule it out. 

With mixed labor market data muddying the picture in recent months, we think a stronger drop in inflation could open the door to another 50bp rate cut from the Federal Reserve in November, UBS said.

“We continue to see broad dollar weakness over coming months and advise clients to use the current period of USD-strength to reduce exposure,” the Swiss bank said. “With this view in mind, the DXY should ultimately fall below 100.”