Related Insights
We maintain our call for the EUR/USD to trade into a higher 1.15-1.20 through 2026. EUR/USD surprised with a 10% appreciation this year despite a widening policy rate differential favouring the US. The European Central Bank lowered the deposit facility rate by 75 bps in January-April amid the Fed’s extended pause. We expect the ECB to deliver the anticipated 25 bps cut to 2% at its June 5 meeting and signal that it is near the end of its rate-cutting cycle. The next rate cut would bring the policy rate to the floor of the ECB’s estimated 1.75-2.25% neutral rate range with a stronger EUR also tightening financial conditions. Meanwhile, some Fed officials saw scope for a rate cut as early as September if Trump’s tariffs increase joblessness without stoking long-term inflation expectations. 
The first wave of optimism in the EUR came in March when the single currency surged 4.3% on hopes that the ReArm Europe Plan (now officially rebranded as Readiness 2030) would reinvigorate growth and mitigate prolonged stagnation fears. Conversely, markets started worrying about the US economy, steering from exceptionalism to stagflation risks due to US President Donald Trump’s aggressive policy mix of sweeping tariffs and significant tax cuts. With Germany on the US Treasury’s currency monitoring list and Trump accusing the EU of ripping America off, he would likely not object to a stronger EUR to address trade imbalances.
The second wave of optimism that fuelled the EUR’s 4.7% appreciation in April was about the growing pessimism toward the USD. Trump’s erratic economic and geopolitical policies deepened doubts over the USD’s stability, legal integrity, and institutional credibility. In late May, less than a week after Moody’s decision to axe America’s final triple-A debt rating, ECB President Christine Lagarde urged the EU to turn its commitment to predictable policymaking and rule of law into a comparative advantage supporting a more prominent global role for the EUR. Lagarde’s push for a more global EUR reflects a view that that stronger capital inflows could help offset the loss in export competitiveness from Trump’s tariffs. Hence, pay close attention to Lagarde’s press conference tomorrow.
Quote of the Day
“It's easy to stand in the crowd but it takes courage to stand alone.”
Mahatma Gandhi
June 4 in history
In 2024, Indian Prime Minister Narendra Modi's Bharatiya Janata party won the most seats but not a majority, in the country's general election.
Topic
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.