At new installs during installation the ini-file is always created at APPDATA. But after installation you can move it to whereever you want and tell UE where to load it from. Here is the UE help text about it:

Telling UltraEdit which INI file to use

To override the default behavior you may use a command line parameter, an environment variable, or add an INI file to the directory containing UltraEdit.

The rules are as follows:

The command line is checked first; if the command line contains "/I=filename" this is used.

Example: /i=c:\windows\uedit32.ini

The filename must follow the /i= immediately. It can be a long name with spaces, in which case it must be in quotes.

If the command line parameter is not found the environment variable is checked. Please note, the environment variable specifies the directory that will contain the INI file, NOT the INI filename itself. The environment variable name is UEINIDIR. If this is defined, UltraEdit attempts to use this directory with the default INI filenames.

Finally, UltraEdit will look in the directory the EXE file is running from to locate the INI file. If the INI file does not exist here, UltraEdit will check the Windows directory for compatibility with older versions and if it is still not found, the %APPDATA% folder will be used.