SINGAPORE - The US dollar sank to its lowest against the Singapore currency in a year on Thursday (July 27) as markets reacted to changes in the US Federal Reserve's policy statement overnight.
The greenback fell against all major currencies immediately after the Fed published its statement. In Singapore, it lost as much as 0.35 per cent against the Singdollar before stabilising.
The Singdollar traded at about S$1.357 to one greenback around 9am on Thursday, the strongest since September last year. The greenback has weakened about 6 per cent against the Singdollar since the year began.
While the market still expects the Fed to start unwinding its massive stimulus in September, Thursday's statement revived concerns that weaker inflation could get in the way of further US interest rate hikes.
The Fed left US rates unmoved as expected on Thursday and said it expected to start winding down its US$4.5 trillion of bond holdings "relatively soon" - a change from "this year" in its June statement, cementing expectations of a September start.
While that would be an effective tightening in financial conditions, it might also lessen the need for actual hikes in rates, which matter more for currency valuations, analysts told Reuters.
"The probability of a December rate hike, according to Bloomberg's interest rate forecast, has dropped to around 40 per cent, from 50 per cent only three weeks ago," said CMC market analyst Margaret Yang.
The US central bank also noted that both overall and core inflation had declined and removed the qualifier "recently", perhaps suggesting concerns the slowdown might not be temporary.
Broadly, all signs point to monetary conditions staying accommodative until inflationary pressure kicks in, and US indices closed higher, with the Dow Jones Industrial Average gaining 0.45 per cent.
That and the stronger Singdollar pretty much set the tone in the market here on Thursday. The Straits Times Index was up 0.34 per cent as at 10am.
Ms Yang said: "Asian markets are generally following the US into rally mode. Wall Street celebrated another record-breaking session, boosted by strong earnings from Ford, Facebook and Boeing. The Fed's dovish statement also brought the market certainty on the future policy outlook."
The Fed also kept interest rates unchanged last night, noting that "on a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 per cent", although "survey-based measures of longer-term inflation expectations are little changed, on balance".