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

Within G10, the USD (United States Dollar) and CHF (Swiss Franc) are still amongst the most over-valued. The USD's allure from high interest rates is fading, with the Fed having cut rates three times in 2025, bringing the Fed Funds rate down to 3.75% in December. Furthermore, Powell's term as Fed Chair will be ending in May, and it is likely that President Trump will nominate a more dovish figure as the next Fed Chair, raising credibility risks for the USD. Meanwhile, a highly valued CHF is not welcome by the SNB. There is little scope for SNB to cut rates even as it revised down inflation forecasts for 2026 and 2027 to 0.3% and 0.6%, and CHF intervention cannot be ruled out.

On the other end, JPY (Japanese Yen) undervaluation has deepened, with fiscal risks under new PM Takaichi on watch. Absent a fiscal shock, narrowing rate differentials favour a JPY recovery, with the BOJ having raised rates in Dec and also signalling that more hikes could come. The next most undervalued currency is the CAD (Canadian Dollar). The economic impact from US tariffs has proven manageable for Canada. With strong employment gains reported in Nov, markets now expect the BoC to hike rates in 2026, which should support a CAD recovery.