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FX | Economy | Asia-Pacific

Weekly FX Focus - USDSGD: David Versus Goliath

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Forecast Spot 0 - 3m 6 - 12m Long-term
USDSGD 1.3470 1.3300 1.3900 1.3000

*Forecasts as of February 2024.


  • The broad-based USD Index (DXY) has gained ~0.7% since the start of 2024 with the solid US January jobs and inflation reports released in February catapulting DXY to break through its 102 – 104 range seen since Nov’23 to a high of 104.96 last week. However, there may be little reason to shift to a more bullish view on DXY despite its recent strength, for several reasons –

    (1) following the strong US jobs and inflation reports, US rates have repriced the Federal Reserve timeline on rate cuts to commence in June with 90bp of cuts discounted for 2024. This compares to April as the starting month of Fed rate cuts and 125bp of cuts discounted for 2024 prior to the release of the US economic reports. Market’s repricing of Fed rate cuts now sees a much closer alignment with the Fed dot plot (75bp of cuts projected for 2024) – so there is likely limited room for US rates (and therefore DXY) to rise further;

    (2) Market’s push back of Fed rate cuts to June looks stretched against the pricing of ECB and SNB rate cuts priced to commence in April. Markets expect the Fed to deliver rate cuts some 2 months later than its European counterparts when historically, it is the Fed that has led the rates cycle – so there is limited room to for this gap to stretch further through higher US rates;

    (3) markets may already be signaling a peak in DXY via the breakdown in correlation between US yields and the greenback late last week that saw DXY falling from its highs even as US yields rose;

    (4) more fundamentally, US data surprises and momentum typically have seasonal aspects - positive in Q1 and weak in Q2 and the solid US jobs and inflation data seen for the month of January may reverse in Q2’2024.
  • Meanwhile, SGD remains resilient even as Ministry of Trade (MTI) and Investment revises down its Q3’23 GDP for Singapore. The MTI however, maintains its 2024 GDP forecast at 1-3% (Citi forecasts 3%) with sequential growth likely stronger in H2’24E likely to result in narrowing of Singapore’s output gap in H2’24. This together with an expected rise in core inflation in Jan-Feb 2024 (3.4 – 3.6%) is broadly consistent with MAS’s January Monetary Policy Statement’s (MPS) balance of risks and implies a preference for a strong (or stronger) SGD $ Nominal Effective Exchange Rate (NEER) to keep policy tight in real terms through 2024. In any case, the hawkish tone of MAS’s January MPS and a gentler-than-expected moderation in core inflation to date points to the risk of a further MAS tightening via a 50bps slope steepening in April or beyond, especially as policy settings have turned less restrictive since Oct’23. As a result, with policy expected to remain ‘tight” in real terms through 2024 and SGD NEER expected to “hug the stronger end of the band”, SGD is likely to be one of the most resilient to any DXY rallies within the FX universe with scope for SGD to strengthen fairly significantly from its current levels should DXY head back lower to within its 102-104 range seen since Nov’23 to early Feb’24.


USDSGD – Recent Gains In The Pair Has More To Do With USD Strength Than SGD Weakness 

Source: Bloomberg, February 19, 2024

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