OCBC: USD Smile Narrative Supports Gradual Gains

OCBC Bank strategists Sim Moh Siong and Christopher Wong note that the US dollar (USD) continues to draw support from its yield advantage and safe-haven appeal. They observe that foreign exchange movements remain consistent with the 'USD smile' narrative, which typically suggests gradual gains for the greenback under current conditions.

The smile theory posits that the USD tends to strengthen in both strong and weak global growth scenarios, while underperforming during moderate growth. The strategists argue that the current environment aligns with this pattern, reinforcing expectations of a gradual upward bias for the dollar.