UBS AG, the world’s biggest wealth manager, is reducing its recommendation on the U.S. dollar versus the euro to neutral after the Federal Reserve opted to maintain its bond-buying program.

“The U.S. dollar was the most favored currency among speculative investors, no doubt partially due to widely-held expectations of a Fed ‘taper,’” Chief Investment Officer Alexander Friedman wrote in his monthly letter to client advisers yesterday. “As these expectations are revised in the coming weeks, we believe it prudent to close our long position in the currency relative to the euro.”

The Federal Open Market Committee unexpectedly refrained from reducing economic stimulus at its Sept. 17-18 policy meeting, choosing to “await more evidence that progress will be sustained.” Fiscal uncertainty regarding the debt ceiling is part of the reason why UBS forecast the Fed to only start tapering in December, Friedman said.

UBS continues to favor U.S. equities and U.S. high-yield bonds, as it sees private-sector deleveraging as “close to over,” according to the letter. In Europe, signs of economic improvement over the past month “reflect not the end of deleveraging but a slowdown of it,” Friedman said, keeping a neutral recommendation on European stocks.

Emerging Markets

Quantitative models suggest that U.S. and euro-area equities are almost equally attractive, the letter said. Still, UBS said it continues to favor U.S. equities over European stocks as “the U.S. economic recovery is better supported by responsive monetary policy.”

Zurich-based UBS is keeping its neutral recommendation on emerging markets and an underweight position on Australian equities and the Australian dollar.

“The deleveraging process in the developed world somewhat ironically led to increasing leverage in the emerging world,” Friedman wrote. “As the pace of deleveraging in the developed world slows and this dynamic begins to reverse, we remain cautious on Australia, which houses the most overvalued emerging market-linked assets, namely Australian financials equities, and the Australian dollar.”