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

The British Pound (GBP) has rallied by over 6% against the USD on a year-to-date basis, resulting in a somewhat high valuation. Our GBP DEER valuation has recovered back to late 2015 levels and stands at its highest in the post-Brexit period. After years of sluggish structural growth, the UK has finally attained its first trade agreements with major economies: a comprehensive trade deal with India, and a more narrowly scoped agreement with the US. The UK-India deal will cut levies on 90% of British products sold in India and is expected to increase bilateral trade between the UK and India by USD34bn a year. Optimism on the prospects of new drivers of growth from more free trade is supporting the GBP, but further gains could be more restrained given valuations.

The US Dollar (USD) is still the most over-valued across major currencies, despite a USD sell-off since "Liberation Day" on 2 April. Confidence in US economic policymaking has been hurt by Trump's announcement of reciprocal tariffs, on top of a 10% baseline tariff that will bring the average US tariff rate to a post-war high. With the US abdicating its leadership of the multilateral rule-based trading system, the USD's lustre as a reserve currency is no doubt tarnished, though not necessarily to the point of being irrecoverable. Assuming that the US continues to negotiate for a reduction of tariffs that is beneficial for all sides, investors might be reassured enough to reassess their US outlook, even if the narrative of US exceptionalism has clearly faded.