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

The United States Dollar (USD) may have seen its valuation ease from its peak in January, but the USD continues to rank as the most over-valued. Capital markets across equities and credit are still optimistic on the US, which suggests that foreign holders of US assets are not in retreat. However, the USD could still lose its allure from high rates. Trump's open desire for Fed rate cuts and his nomination of two new Fed Governors this year could lead to a more dovish bias for the Fed. Already, the labour market is softening, and Chair Powell has signalled the possibility of rate cuts at Jackson Hole. This means that the overvalued USD could ease again as markets anticipate coming Fed rate cuts.

The Japanese Yen (JPY) still ranks as the most under-valued in G10. However, rate differentials may soon turn in favour of the JPY. While the Fed is poised to cut rates soon, the BOJ is assessing the timing for its next rate hike. Japan's underlying core-core inflation remains above 3%, while JGB long end yields are tracking to multi-year highs, potentially reflecting a greater inflation risk premium. US Treasury Secretary Bessent has openly voiced that the BOJ is behind the curve, while BOJ Governor Ueda also noted at Jackson Hole that wage gains are spreading from large enterprises to medium and small enterprises. With greater tariff certainty due to the US-Japan trade deal, a potential BOJ rate hike this year should not be discounted, which is likely to bolster the under-valued JPY.