SINGAPORE – The Singapore dollar could extend its gains against the greenback, driven by robust domestic growth and a US dollar caught in a global tug-of-war over mounting national debt, volatile Treasury yields and uncertainty over Federal Reserve interest rate moves.
The US currency fell 5.9 per cent against the Singdollar in 2025 and has weakened a further 1.56 per cent so far in 2026, trading at around S$1.27 on Sept 8.
For Singapore consumers, a stronger Singdollar would make US travel and imports cheaper. But investors holding US assets could receive less after converting their returns into Singapore dollars. Local businesses earning revenue in the US currency could also face a foreign-exchange drag.
Josh Gilbert, lead analyst for the Asia-Pacific and the Middle East at etoro, said the Singdollar is well-placed to benefit from further weakness in the greenback. “The trend is a stronger Singapore dollar for as long as the US debt story dominates the headlines,” he said.
The Singdollar has its own sources of support, with the Monetary Authority of Singapore (MAS) having tightened monetary policy twice in a row this year.
Singapore’s strong domestic growth has also enabled MAS to keep a policy of allowing the Singdollar to appreciate against its trade partners’ currencies.
The local economy grew 5.9 per cent year on year in the second quarter, with manufacturing expanding 12.2 per cent, supported by demand for AI-related chips and data storage products. The Republic has also upgraded its 2026 economic growth forecast to between 4.5 and 5.5 per cent.
This leaves the Singdollar “well supported” heading into MAS’ next monetary policy review in October, said Eric Xiao, head of sales for Asia at CMC Markets.
Still, competing forces affecting the greenback could keep its exchange rate against the Singdollar volatile in the short term.
US debt burden weighs on greenback
The US dollar is being pulled in opposing directions as investors weigh the attraction of high US interest rates against mounting concerns over the country’s US$40 trillion (S$51 trillion) debt pile and uncertainty over the Federal Reserve’s next move.
At the centre of this tension is the US Treasury market, where long-term yields have climbed to nearly two-decade highs as investors demand greater compensation for persistent inflation, heavy government borrowing and fiscal risk, despite recent efforts by the Trump administration to contain the rise.
The US Treasury sought to calm the market on Aug 19 by announcing that it would at least double the maximum size of certain buybacks of longer-dated government debt, from US$2 billion to US$4 billion per operation, beginning on Sept 9. The Treasury said the move was intended to improve liquidity in the market.
The announcement briefly pushed the 30-year Treasury yield down to about 5.18 per cent from a 19-year high of roughly 5.34 per cent, although much of the decline was subsequently reversed, with the yield subsequently climbing back above 5.2 per cent.
Higher Treasury yields would typically support the greenback by making US assets more attractive to investors.
However, buying back longer-dated bonds does not reduce the government’s overall debt burden. If the purchases are financed by issuing more short-term Treasury bills, they merely shift part of its borrowing towards shorter maturities.
That could leave the government having to return to the market sooner to refinance its debt, exposing it more frequently to changes in borrowing costs.
Analysts said the US dollar could weaken if investors believe rising Treasury yields reflect growing concerns about the sustainability of US government debt.
Gilbert of eToro noted that the bond market is currently the main driver of the US dollar, with the 10-year Treasury yield near 4.8 per cent and the 30-year yield above 5.2 per cent.
“The driver is the US borrowing more than ever, with debt past US$40 trillion and a deficit near 6 per cent of gross domestic product, while the Iran conflict keeps oil and inflation elevated,” he said.
“Until the deficit itself starts coming down, this is a patch, not a fix.”
Caught between the government and the Fed
While concerns over US debt could shape the dollar’s longer-term direction, its performance in the coming weeks may depend more heavily on the Fed.
US inflation data due to be released on Sept 11 could determine whether the central bank raises rates in its meeting on Sept 15 and 16, a move that would likely give the greenback a short-term lift, Gilbert said.
But the longer-term outlook is less clear.
Gilbert said: “A government intervening in its own bond market while the White House leans on the Fed to cut (rates) makes investors question the world’s reserve currency… That is a longer-term problem for the dollar that one Fed decision won’t fix.”
Saxo’s chief investment strategist Charu Chanana said investors need to consider why US Treasury yields are rising.
“If yields are going up because the economy is stronger, that can be dollar-positive,” she said.
“But if they are rising because investors want greater compensation for inflation, fiscal deficits and an ever-growing supply of government debt, that is a much less constructive signal for the currency.”
Higher US interest rates led by the Fed alone may therefore no longer be enough to sustain a rally in the dollar, she added.
“A hotter-than-expected inflation reading or a hawkish Fed could still lead to a short-term bounce in the greenback,” said Chanana.
“But other central banks raising rates at the same time, coupled with investors demanding greater compensation for US fiscal risks, complicates its medium-term outlook.”
Mounting inflation concerns
Chez Anbu, head of wealth advisory at OCBC Bank, said higher long-term yields have been increasing the US government’s debt-servicing burden, which already exceeds US$1 trillion annually.
He added that concerns over the US’ debt could make the dollar less attractive if investors believe policymakers might tolerate higher inflation to reduce the debt’s value in real terms. While that would make existing debt easier to repay, it would also diminish the purchasing power of the dollar.
However, these concerns eased following Fed chair Kevin Warsh’s speech at the Jackson Hole Economic Policy Symposium in late August, when he reinforced the US central bank’s commitment to fighting inflation.
The US dollar subsequently strengthened as investors grew more confident in the Fed’s inflation-fighting credentials, Anbu pointed out.
Markets are divided over whether the Fed will raise interest rates at the upcoming meeting.
“Whatever the outcome, investors will expect a clear and convincing explanation for the chosen course of action,” Anbu said, adding that the impact of rising Treasury yields on the US dollar ultimately depends on what is driving them.
“Higher US yields generally support the dollar when they reflect stronger growth or higher expected Fed rates relative to other countries,” he said.
“But if yields rise because investors demand compensation for fiscal uncertainty, the currency response can be less favourable.”
