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) remains the most overvalued currency among major economies, although its misalignment has narrowed to the smallest since January 2023. A correction in AI-related equities, driven by concerns over excessive investment and leverage among data infrastructure providers, has weighed on risk sentiment and pushed long-dated US Treasury yields lower. Front-end US rates have also eased, as Federal Reserve officials have refrained from signalling a follow-up rate hike in October. Together, these developments could continue to exert downward pressure on the overvalued USD.

The Euro (EUR) is also overvalued, with our DEER estimates placing its valuation at the highest level since 2008. Such strength poses a challenge for European competitiveness, particularly against an undervalued RMB. In response, the European Union has negotiated arrangements with China to curb exports of Chinese hybrid vehicles into the EU market, and is also considering broader export quotas targeting other Chinese goods. Beyond trade concerns, political uncertainty in France ahead of the 2027 presidential election could revive fiscal worries and trigger renewed pressure on French government bonds. Taken together, these trade and fiscal headwinds suggest scope for the EUR to moderate from its elevated valuation.