DXY Index could extend towards 102.00. The patience exhibited by Fed’s Powell at the May FOMC decision is a marginal USD-positive. It compels the market to pare back its dovish expectations. Trade headlines are still the main FX driver. After weeks of supportive rhetoric, we finally see concrete progress in the form of a US-UK trade framework. There may be bigger prizes to come, with Trump hailing it as “the first of many” trade deals. He also hinted at reducing tariffs on China if the Switzerland talks progress well. These developments will continue the feel-good factor that has persisted since the 90-day delay in reciprocal tariffs. However, the trade landscape is still a very different place compared to the pre-Trump era – it is not obvious that the Feb-Apr DXY Index decline should be fully reversed. For now, the DXY Index is gaining better upside momentum, and could extend further towards 102.00 (near its 50-DMA). A full recovery towards Jan highs is still not the baseline expectation. First support level moves higher to 99.50.

Below 1.3200, the USD-SGD will retain a negative bias. The USD-SGD will take lead from USD-CNH in the near term. If the USD-CNH is anchored around the bottom half of the 7.2000 – 7.3000 range, it may be difficult to see the USD-SGD back above 1.3000 in a sustained fashion. However, the mechanics of the S$NEER policy limits abrupt and sharp USD-SGD declines from current levels, unless it is coupled with broad-based USD weakness. Overall, expect the USD-SGD to remain within the 1.2850 to 1.3200 range, with a bias to sell near the top of the range.

USD-CHF rangebound between 0.8200 and 0.8400. Swiss Apr headline and core inflation prints entered weaker than expectations and prior readings. We fully expect the SNB to prefer a weaker CHF to spur price pressures. Expect the SNB to continue with rate cuts in its upcoming decisions, and use every opportunity to jawbone the CHF lower. Direct interventions should also not be ruled out. Overall, the period of outsized CHF strength may be coming to an end. However, the impact on USD-CHF will be comparatively muted, given that the USD faces its own set of issues as well.

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