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Currency Market Analysis

Sep 21, 2017 | Currency Market Analysis

Global Themes

USD jumps as Fed signals December hike in play

The USDSGD jumped higher overnight as a belligerent Fed sparked a major reversal.
In a move that surprised markets, the Fed signalled it still plans to raise US interest rates one more time this year. The news pushed the USDSGD higher.
A slowdown in inflation had earlier caused markets to speculate the Fed might pause its plans to hike rates.
However, Fed chair Janet Yellen said the strong employment market and solid economic growth means the Fed still needs to raise rates at its December meeting.

SGD stronger

In other markets, the SGD saw very strong gains versus low-yielding currencies.
The euro fell 0.7% and neared the lowest level of the month. The Swiss franc was also down 0.7% as it fell to the lowest level since April.
The Japanese yen was down 0.4% as it fell to the lowest levels since April 2016.

USD supportive
The Fed’s forecast of a December rate hike could lead to a stronger US dollar over the next few months. This could pressure the USDSGD higher.
The Federal Reserve also signalled its plans to reduce the size of its balance sheet in a move that is also likely to see US interest rates higher.
Over the longer term, a move to sell back the Fed’s bond holdings should press US interest rates higher. This is also likely to support the US dollar.

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