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

The US dollar (USD) has eased after Trump announced that the US will introduce reciprocal tariffs on the vast majority of its goods imports, with a minimal 10% baseline tariff. The levels of these sweeping tariffs were higher than expected, and had raised concerns that they could dampen US growth and hurt US corporate profitability. This in turn led to a sharp selloff in US equities, increased expectations of more Fed rate cuts this year and lower US treasury yields, which dampened demand for the USD. The narrative of US exceptionalism has become fragile in the wake of Trump's risky economic policies and could lead to a further drag on the still highly over-valued USD.

The Japanese Yen (JPY) remains the most undervalued across major currencies, even as USD/JPY slipped below the 150-level due to elevated market volatility triggered by Trump's reciprocal tariffs. While Japan is not immune to US tariffs with its goods exports to the US comprising nearly 5% of GDP, the JPY could still be supported by repatriation of foreign assets, particularly those located in the US. Given downside risks to the US economy and heightened market volatility, there are risks of an unwind of US asset positions funded by JPY shorts, which are no longer as attractive on a risk-reward basis.