OCBC revises EUR/USD and USD/JPY targets higher as Fed policy and yield curve dynamics replace oil as key dollar drivers.
The US dollar has strengthened due to a more hawkish Federal Reserve and a flatter yield curve, replacing high oil prices as primary support. OCBC now forecasts EUR/USD at 1.11 and USD/JPY at 163 by year-end, up from 1.18 and 155, respectively.
The shift follows Fed signals reassuring markets on policy independence, leading to an unwind of debasement trades. This has flattened the yield curve and bolstered the dollar, realigning it with rate differentials after earlier dislocations during the energy shock.
OCBC projects the DXY index to gain 2–3%, with low-yielding currencies like the Swiss Franc and Japanese Yen facing pressure. A 5 percent move would require an oil surge or US overheating scenario.