Singapore dollar hits over 5-year high against US currency as Fed says disinflation now in play
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The Singapore currency rose 0.2 per cent to 1.3038 per US dollar, its highest since January 2018. After adding its overnight gains, the Singdollar was up about 0.7 per cent since Tuesday.
THE STRAITS TIMES
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SINGAPORE – The Singapore dollar climbed to a more than five-year peak on Thursday after the United States central bank said it had turned a corner in the fight against inflation, giving markets a confidence boost that the end of its rate hike campaign is near.
The Singapore currency rose 0.2 per cent to 1.3038 per US dollar, its highest since January 2018.
After adding its overnight gains, the Singdollar was up about 0.7 per cent since Tuesday.
The local currency, which has been on an upward trajectory this year due to rising expectations of easing inflation and less aggressive monetary tightening, has gained about 2.7 per cent since ending 2022 at 1.3395 to the greenback.
Other regional currencies, including the Philippine peso, Indonesia’s rupiah and the South Korean won, strengthened between 0.7 per cent and 1 per cent to hit multi-month highs against a softer dollar.
“The Singapore dollar Neer (nominal effective exchange rate) has retreated from the top towards the midpoint of (the Monetary Authority of Singapore’s) policy band, a sign that policy focus may start to shift from inflation towards economic slowdown,” DBS Bank foreign exchange strategist Philip Wee said.
The Federal Reserve raised interest rates by a widely expected 25 basis points (bps) on Wednesday, with its chairman Jerome Powell saying a “disinflationary process has started”.
It marked the central bank’s first explicit acknowledgment of slowing inflation
“While Powell did say he does not see the Fed cutting rates this year, the absence of any forceful push-back against market expectations for rate cuts somewhat lent support to sentiment,” OCBC Bank currency strategist Christopher Wong said.
The dollar index, which measures the greenback against six major peers, fell to a nine-month low of 100.80 following Mr Powell’s remarks.
With the Fed out of the way, the stage is set for the European Central Bank (ECB) and the Bank of England to announce their rate decisions later on Thursday, where expectations are for a 50bps hike from each.
The pound, which rose 0.47 per cent on Wednesday, held at US$1.236 on Thursday.
The dollar slid against the Japanese yen, dropping to as low as 128.07, its lowest in two weeks.
The euro hit US$1.1034 in Asian trading, its highest since April 4, having jumped 1.2 per cent on Wednesday.
It was last at US$1.100, broadly flat on the day, as the focus turned to the ECB meeting.
“The risk is that we get a hawkish 50 from the ECB and a dovish 50 from the Bank of England – that might create some volatility,” said Mr Ray Attrill, head of foreign exchange strategy at National Australia Bank.
Euro zone inflation eased for the third straight month in January, data on Wednesday showed, but any relief for the ECB may be limited as underlying price growth held steady, and concerns have already been raised about the reliability of the figures.
“I don’t think that is going to influence the messaging from the ECB, which I think is still going to be that it has got a lot to do,” Mr Attrill said.
In Asia on Thursday, stock markets mostly advanced and gold hit more than a nine-month high after Mr Powell said the Fed had made progress in its battle against inflation.
China and Hong Kong stocks retraced gains and finished lower, as investors stayed on the sidelines and awaited further signs of recovery in the pandemic-hit Chinese economy.
Japan’s Nikkei index closed 0.2 per cent higher, while Hong Kong’s Hang Seng Index fell 0.5 per cent, and the Shanghai Composite Index edged down 0.02 per cent.
Singapore’s Straits Times Index ended 0.4 per cent lower as local banks’ shares dropped on expectations that the Fed is close to ending its rate hikes.
Higher interest rates help to boost banks’ interest margins.
DBS shares fell 2.04 per cent, while OCBC closed down 0.77 per cent and UOB slipped 0.34 per cent.
Spot gold was up 0.3 per cent at US$1,956.34 per ounce as at 5.45pm Singapore time.
It had hit US$1,959.72 earlier in the session, its highest since April 2022. REUTERS, BLOOMBERG
Additional information from The Straits Times
