DBS notes modest FX risk rise in May-June but USD firms on hawkish Fed interpretation under new Chair Warsh.
The US dollar gained ground in June as markets priced in a hawkish shift following the first Federal Reserve meeting under Chair Kevin Warsh. DBS Group Research’s FX Risk Score showed a modest increase in FX risk during May and June, though levels remained below the highs seen during the Middle East conflict earlier this year.
While US-Iran tensions eased after an interim peace deal, structural concerns about US fiscal sustainability and policy uncertainties persisted. Despite these headwinds, the dollar’s strength was supported by tightening funding conditions in Euro and Japanese markets, alongside a hawkish Fed outlook.
Investor sentiment remains cautious, balancing the dollar’s near-term resilience against long-term risks tied to US exceptionalism and fiscal challenges.