The DBS Equilibrium Exchange Rates (or DEER) indicate fair values for global currencies relative to a trade-weighted currency basket.

The Japanese yen (JPY) remains the most under-valued currency among G10 currencies. Japan has possibly intervened again in FX markets this month, resulting in a rapid drop in USD/JPY from above 161 to around 158 in the wake of softer US CPI on 11 July. This follows earlier rounds of USD/JPY selling intervention in late April-early May that amounted to JPY9.8trn (USD62.7bn). The JPY's undervaluation could be explained somewhat by rate differentials and net FDI flows, but it is still too cheap given historical relationships with these capital flow factors. On the policy front, BOJ will announce its plan to reduce JGB bond purchases at its policy meeting on 31 July. Institutional investors are divided between calling for early and sharp cuts in purchases, to a cautious reduction. The lack of market consensus implies that BOJ's decision on JGB purchases will have the potential to surprise JPY investors, on top of the risk of a surprise interest rate hike.

The United States Dollar (USD) remains highly over-valued. Its extreme over-valuation is partially supported by capital flow factors such as rate differentials, but there is still much that cannot be explained by traditional factors. Geopolitical risks including US Presidential elections, trade tensions, and Middle East conflicts could have lifted USD demand. However, an easing of US CPI inflation in June has raised expectations that the Fed could begin to cut rates in September. If more evidence of a slowing US economy builds, this could weigh more on the USD.