US Dollar: Rangebound resilience with upside risks – OCBC

§ 01 Executive Snapshot

• What: The US Dollar is experiencing rangebound resilience with potential for further strength.
• Who: OCBC's FX Strategist Sim Moh Siong and the Federal Reserve.
• Why it matters: The Dollar's stability and growth forecasts indicate broader implications for global currency markets and economic policy through 2026.

§ 02 Key Developments

• The final Fed rate cut has been removed from forecasts, with expectations set for no easing through 2026.
• The 10Y US Treasury yield forecast has been increased to 4.55% by the end of 2026, up from 4.25%.
• Strong US growth compared to Europe and non-tech Asia underpins a resilient USD, with risks leaning towards further strength.

§ 03 Strategic Context

• The Federal Reserve's hawkish stance is supported by a stabilizing US labor market, which gives it leeway to concentrate on inflation management.
• The context of ongoing AI capital expenditures and potential increases in energy prices may contribute to the strengthening of the Dollar.

§ 04 Strategic Implications

• The immediate consequence may be a stronger Dollar impacting trade balances and inflation globally.
• Long-term implications could include sustained interest in US assets as the Fed maintains a firm monetary policy stance.

§ 05 Risks & Constraints

• There may be challenges related to unexpected shifts in inflation data or labor market conditions that could alter Fed policy.
• Global economic disparities, particularly between the US and other regions, could affect the Dollar's performance.

§ 06 Watchlist / Forward Signals

• The upcoming US CPI print on June 10 will be critical for assessing inflationary pressures and potential Fed responses.
• Observing AI capital expenditures and energy prices will provide insights into future Dollar strength or weakness.