UOB: Fed will have 3 USD interest rate cuts this year, exchange rate will gradually decrease

The May 2025 Exchange Rate and Interest Rate Strategy Report conducted by the Global Market and Economic Research Department, UOB Bank (Singapore) has just released that the USD continues to weaken compared to other strong currencies and continues to be maintained.

The USD had a volatile April, as rumors of de-dollarization spread across the market. The focus was on theories surrounding the “Mar-a-Lago Accord,” which is said to include trade tariffs and weaken the USD.

However, according to UOB, the real reason for the USD sell-off, especially when it fell sharply against the New Taiwan Dollar (TWD), could be due to many export businesses simultaneously selling off previously stored USD from export revenue.

UOB maintains its view that the USD will continue to weaken against other major currencies .

UOB maintains its view that the USD will continue to weaken against other major currencies, causing the USD Index (DXY) to fall to a new trading range below 100 and continue to decline to 96.9 by Q1 2026. In parallel, UOB’s latest forecast shows that EUR/USD and GBP/USD will continue to increase to 1.17 and 1.39 respectively by Q1 2026.

For AUD, the “V” shaped recovery may have gone too far, with a more limited increase forecast, reaching only about 0.66 in Q1/2026. As for JPY, with the Bank of Japan’s (BOJ) more moderate interest rate hike roadmap, it will tend to appreciate gradually, reaching 140 USD/JPY in Q1/2026.

In terms of Asia FX, although the volatility of early April has passed, there are still risks that could limit the recovery of regional currencies. These include uncertainty surrounding the outcome of trade negotiations between the US and China, as well as rapid appreciation of Asian currencies amid a weakening economic and trade outlook in the region.

UOB experts believe that the recent strong recovery in Asian currencies has been somewhat overdone, but compared to last month's forecast, the expected peaks for USD/Asia in Q3/2025 have been revised down, reflecting the possibility that the most intense phase of the trade war has passed. Accordingly, UOB forecasts USD/CNY at 7.32 in Q3/2025; USD/SGD, USD/MYR, USD/THB, USD/IDR and USD/VND at 1.32; 4.38; 33.5; 16,800 and 26,300 respectively.

Notably, the VND was a special case in the strong recovery of regional currencies in April 2025, when the VND decreased by 1.6% in the month to 25,990 VND/USD. The market may have reacted to the negative economic impact on Vietnam, after the US announced to impose tariffs of up to 46% on Vietnamese goods - the second highest rate globally, after China.

The manufacturing PMI also fell sharply to 45.6 - the lowest level in two years - showing cautious sentiment among manufacturers amid concerns that Vietnamese goods are losing their price competitiveness in the largest export market, the US.

If a trade deal with the US is not reached, UOB believes that the VND will remain in a weak range against the USD. The updated forecast for the USD/VND exchange rate is: VND 26,100 in Q2/2025, VND 26,300 in Q3/2025, VND 26,000 in Q4/2025 and VND 25,800 in Q1/2026.

Regarding the outlook for USD interest rates, UOB continues to maintain its view that the Fed will ease monetary policy. Although the timing of the Fed’s rate cut has been adjusted to be delayed, UOB still forecasts that the Fed will make three rate cuts, each of 25 basis points, this year.

The updated timing for these three cuts is at the FOMC meetings in September, October and December 2025, thereby bringing the policy interest rate from 4.5% to 3.75% by the end of 2025. Meanwhile, UOB forecasts that the gold price could reach $3,600/ounce in the first quarter of 2026.

For the gold market, safe-haven demand continues to be maintained, along with central banks steadily increasing their gold holdings, expectations of a weaker USD and the possibility of capital flows back to gold ETFs in the US. All these factors create positive conditions for gold prices. Therefore, UOB maintains its positive view and raises its gold price forecast to USD 3,600/ ounce by Q1/2026.

Source: https://baodautu.vn/uob-fed-se-co-3-dot-giam-lai-suat-usd-trong-nam-ty-gia-giam-dan-d283155.html