FX Quarterly 2Q 26: Less De-Dollarisation, More Polarisation
Although post-June FOMC currency moves suggest a USD resurgence, macroeconomic and geopolitical dynamics point to volatility and crosscurrents for the remainder of 2026.
Group Research - Econs30 Jun 2026
  • Following a de-dollarisation scare last year, markets are entering an era of currency polarisation.
  • Iran and Venezuela represent a targeted US strategy to restore the Petrodollar framework.
  • China and the EU want to elevate the global roles of their currencies to mitigate USD risks.
  • Favour shorts in USD/KRW and longs in NZD/CAD on relative value.
  • JPY's undervaluation is at a record, while IDR is most undervalued Emerging Asian FX.
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Currency polarisation

  • Following the de-dollarisation scare of 2Q 2025, global markets are entering an era of structural currency polarisation a year later.
  • Iran and Venezuela represent a targeted US strategy to restore the Petrodollar framework.
  • China and the EU want to elevate the global roles of their currencies to mitigate USD risks.
  • EU and the US want China to address CNY undervaluation to fix trade imbalances.

Currency blocs roundup

  • European currencies are still in the stronger portion of their Trump 2.0 ranges.
  • Outperforming currencies – AUD, CNY, and MYR – may consolidate.
  • The decline in global oil prices should reduce the pressure on Asia’s vulnerable currencies.
  • The Fed’s hawkish June dots may mirror Powell’s warning that a December cut was not a done deal.

FX strategic trade ideas

  • Buy KRW at its deepest undervaluation since 2009
  • Long NZD/CAD on asymmetric relative value

Valuations and flows analysis

  • USD, EUR, AUD, and CHF are the most over-valued G10 currencies.
  • JPY’s valuation has deepened to a record low.
  • IDR displaced KRW as the most undervalued Emerging Asian currency.


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Philip Wee

Senior FX Strategist - G3 & Asia
philipwee@dbs.com

Chang Wei Liang

FX & Credit Strategist
weiliangchang@dbs.com
 


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