Market Overview

23 September 2022

The Singapore Dollar Follows the Greenback’s Wake

The Singapore Dollar is suffering against the U.S. Dollar, just like the other major currencies. The Greenback is gaining steam as the Federal Reserve (Fed) continues its unprecedented interest rate hike cycle. The U.S. monetary regulator has recently upgraded its interest rate by 75 basis points from 2.5% to 3.25% as expected.

Even though markets expected this hike, they seem to have been shaken by the unexpected statements by the Federal Open Market Committee (FOMC) members forecasting the  continuation of aggressive rate hikes at a faster pace, while also expecting GDP to deteriorate by the year end to 0.2% from the 1.7% estimated in June. So, continuous interest rate hikes to 4.4% by the end of 2022 and the projection of keeping rates high at 4.6% in 2023 came as an unpleasant surprise. 

The Fed’s decision, together with the forecast, immediately pushed the U.S. Dollar index (DXY) to new record highs at 111.5 points. USDSGD surged above 1.420 in recent days, while rising 5.3% since the beginning of 2022.

However, the situation is rapidly changing as the rise of the U.S. Dollar is seen to be too emotional. The Bank of England has suddenly made a big interest rate hike from 1.75% to 2.25%, while the Bank of Japan made its first intervention in the market since 1998. All it all, these actions have led to a correction of the Greenback  as the DXY was down by 1% to 110.4 points. Singapore’s currency responded by moving back to 1.415 against the U.S. Dollar.

It is likely that the Singapore currency will move in response to the American Dollar. Interest rates in Singapore were raised from about 0% to 2.3% recently. The monetary authority of Singapore is not trying to outrun the Fed. The island’s inflation is at 7% year-over-year compared to 8.3% in the U.S. and Singapore’s export-driven economy is marginally benefiting from the weakening currency. So, it is likely the USDSGD may move to the upside towards the 1.44-1.46 resistance levels, where it was in early 2020 before the pandemic. But before that a correction to 1.40 could be performed during the September-October period.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


Mark Goichmann
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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