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Sell! Dollar! Sell!
The Dollar (USD) -has had a very difficult month across April with an entire barrage of emotive de-dollarization rumors. Chief of these de-dollarization theories revolve around the mechanizations of the supposed Mar-a-Lago Accord which included trade tariffs and a weaker USD. We postulate that a more objective reason behind the USD’s sell-off post Liberation Day with its intensifying plunge against TWD, was more likely due to the concentrated unwinding of large amounts of USD from exporters who had previously held onto their USD trade proceeds.
Objectively, we maintain our view that the USD will continue to weaken against the Majors. This will result in the USD Index (DXY) entering a new trading range below 100 and falling further towards 96.9 by 1Q26. Concurrently, our updated forecast sees EUR/USD and GBP/USD, rising further to 1.17, 1.39 by 1Q26. As for the AUD, its “v-shaped” rebound may have been overextended and we see a more limited gain to 0.66 by 1Q26. The Bank of Japan (BOJ)’s milder rate hiking path will see a more modest appreciation trajectory of the JPY to 140 against the USD by 1Q26.
As for Asia FX, while the acute phase of Asia FX weakness and volatility in early Apr may have passed, key risks remain that may temper with the Asia FX rally. These include considerable uncertainty as to how the trade talks between the US and China will work out as well as the abrupt Asian FX strength being at odds with weakening economic growth and trade outlook across the region.
Overall, while we think the current abrupt Asia FX rally may be overdone, compared to the previous monthly forecast, we nonetheless mark the previous anticipated peaks in USD/Asia in 3Q25 lower to denote the most intense phase of the trade war may have passed. As such, our updated forecasts see USD/CNY at 7.32 in 3Q25, with USD/SGD, USD/MYR, USD/THB, USD/IDR and USD/VND at 1.32, 4.38, 33.5, 16,800 and 26,300 respectively by 3Q25 as well.
As for rates outlook, we reiterate our view of further easing from both Fed and MAS. While we have pushed back the timeline of Fed rate cuts, we continue to see 3 x 25 bps rate cuts this year. Updated timing of the rate cuts will be 25 bps each at the Sep, Oct and Dec FOMCs. This will bring Fed Fund Rate down from 4.50% to 3.75% by end of this year. As for the MAS, the thresholds for a neutral appreciation path have been met and we see a complete flattening of the S$NEER at the Jul MPS.
Fears over deteriorating foreign demand for US Treasuries may be valid but consequences will need multiple years to play out and the process will be gradual. We acknowledge that the US possesses considerable domestic capacity to absorb a reduction in foreign Treasury demand starting with the Federal Reserve of course.
Recent strong Asian currency performance paves the way for rate cuts which are much needed to stabilize the deteriorating growth outlook. At the moment of writing, China has embarked on a new round of easing with its latest 50 bps RRR cut and 10 bps cut to benchmark money market rates.
Overall, we forecast the 3M compounded in arrears Sofr and Sora at around 3.73% and 2.19% by 4Q25. In the back end, we forecast 10Y UST yield at 4.10% and 10Y SGS yield at 2.50% by 4Q25.
Finally for gold, in view of on-going safe haven demand, consistent strong allocation by central banks, supportive tailwind of anticipated weak USD going forward and possible renewed gold ETF demand in the US, we maintain our positive gold view and raise our forecast further to USD 3,600 / oz by 1Q26.
Heng Koon How
Head of Markets Strategy
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Peter Chia
Senior FX Strategist
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Victor Yong
Interest Rates Strategist
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Quek Ser Leang
Senior Technical Strategist
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