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 the most under-valued currency, but its under-valuation has narrowed substantially since July. This came on the back of an unwind in JPY carry trades, catalyzed by softer equity markets and BOJ's surprise rate hike in July. In its September meeting, the BOJ did not signal that it is looking at raising rates in the short-term, and USD/JPY has been in a holding pattern above 140. Meanwhile, Shigeru Ishiba won the LDP Presidential election on 27 Sep and will replace Kishida as the next Prime Minister. Ishiba's victory over an opponent who wanted more dovish monetary policy has lifted the JPY. Without political opposition to BOJ's plan of further normalization, the under-valued JPY could continue to recover.

The United States Dollar (USD) remains the most over-valued currency in G10 FX. Nonetheless, its valuation has been easing, with the USD slipping since June amid softening US inflation and slower job creation. Given higher confidence that inflation will return to target, the Fed has started its policy easing cycle in September, cutting rates by 50bps and guiding for two more rate cuts by the end of the year. The USD's lofty interest rate advantage is set to erode, which should lead to a further narrowing of its high valuation.