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

The Japanese yen (JPY) is still the most undervalued currency among G10 currencies. The BOJ finally phased out its crisis era policy settings in March by reversing its negative interest rate policy (NIRP), ending its yield curve control (YCC) framework, as well as terminating all risky asset purchases. While the JPY stayed weak on expectations of a still dovish BOJ, we expect that the BOJ's next move is still likely to be a hike and a paring back of its JGB asset purchase program, which should narrow rate differentials and be JPY positive. Meanwhile, extreme JPY weakness is raising the risk of market intervention to support the JPY, with Vice Minister Kanda warning that there are clear speculative moves and that the government is prepared to restore calm to the market. Our model indicates that the risk of intervention will become significant if USD/JPY crosses above 152, and the JPY could bottom out around this level.

The Swiss Franc (CHF) remains highly over-valued, being the second most over-valued currency after the USD. The Swiss National Bank (SNB) became the first major central bank to lower rates this cycle, cutting its policy rate by 25bps to 1.50% in March. The SNB's decision took into account reduced inflationary pressures and the appreciation of CHF in real terms. With the SNB having lowered its inflation forecast to 1.4% for 2024, CHF strength no longer accords with Switzerland's policy interest, which was also indicated by the SNB having stopped CHF purchases in late 2023. We see scope for CHF to soften as SNB policy begins to focus more on growth rather than inflation.