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

The USD's (United States Dollar) valuation has risen back to its highest since December 2025, as the USD is a beneficiary of high oil prices stemming from the US-Iran conflict. The US is one of the few advanced economies that are net energy exporters given the development of its shale oil resources in the last decade. American manufacturing will not be at risk from any Middle East oil supply disruption, while elevated oil and natural gas prices are also a positive for American terms of trade. Nonetheless, if a ceasefire happens and a diplomatic resolution can be reached with Iran for a reopening of the Strait of Hormuz, the USD could start to fall given its high valuation, prospects of Fed rate cuts, and a decline in energy prices.

JPY (Japanese Yen) is the most under-valued across G10, with its valuation turning more extreme in recent weeks due to the Middle East conflict. Japan is heavily dependent on oil and gas from the Middle East, and disruptions to its energy supply is a major risk. The jump in oil prices is also reminiscent of the 2022 price surge that weighed heavily on Japan's trade balance and the JPY. The good news is that Japan holds a huge strategic oil reserve equivalent to 250 days of consumption in January, which will be available for domestic refiners but are not necessarily released to the international market. Supply chain buffers give Japan time to secure alternative oil supplies from the US and Central Asia, limiting risks of industrial disruptions. This will underpin support for the excessively weak JPY, while Finance Minister Katayama has also underscored the possibility of taking "bold actions" to counter currency moves, pointing to speculative currency moves driven by oil market developments. The threat of FX intervention should help to support JPY, while a narrowing of the JPY's sharp undervaluation could hinge on a retreat in oil prices.