Dollar Strength Expected to Persist Amid Tightening Risks

The US dollar remains strong due to persistent risks of Federal Reserve tightening, according to OCBC's latest research note. The bank's currency strategists believe that the Fed may need to keep interest rates high for longer to combat sticky inflation, supporting the greenback.

This view aligns with recent market pricing, which has trimmed expectations for aggressive rate cuts in 2025. Resilient US economic data and a still-tight labor market are factors that could force the Fed to act again, further underpinning the dollar.

OCBC notes that the policy gap between the US economy and other major economies is likely to keep the dollar strong in the near term. This divergence has resulted in the dollar index remaining firm in recent weeks.