SINGAPORE – The Singapore dollar recovered against the greenback after initially weakening following the US Federal Reserve’s Sept 16 rate hike, while the benchmark Straits Times Index also recouped some of its early losses.
The Fed raised its benchmark overnight interest rate by 25 basis points to a range of 3.75 per cent to 4 per cent, its first increase since July 2023, and indicated that another round of hikes in 2026 is to come.
Price pressures have remained elevated amid US President Donald Trump’s global tariffs, an energy shock following the outbreak of the US-Israeli war with Iran, and heavy capital spending driven by the artificial intelligence boom.
US inflation stood at 3.4 per cent in August, above the Fed’s preferred rate of 2 per cent.
During a news conference, Fed chairman Kevin Warsh said inflation has been “too high… for too long.”
The Federal Open Market Committee, in its brief post-meeting statement, said: “Today’s policy action will support a timelier return to the committee’s 2 per cent goal. The committee will deliver price stability.”
The Singapore dollar recovered slightly against the US dollar following the Fed’s widely anticipated move, with the US dollar easing from about $1.278 to $1.276 at around noon local time.
Still, the US dollar has appreciated against the Singdollar over the past week, as higher US Treasury yields and the prospect of further rate increases boosted demand for the greenback.
This was despite the Monetary Authority of Singapore’s current policy of allowing the local currency to appreciate against a basket of other currencies.
The US dollar hit a seven-week high against its major peers on Sept 17, underpinned by a jump in short-term two-year Treasury yields, although yields on 10-year Treasuries fell.
Analysts explained that short-term yields may remain under pressure as investors price in further rate hikes, while longer-term yields are being kept high by inflation, heavy government borrowing and concerns over US finances.
STI recovers
The STI dipped slightly before recovering to around 5,650 points shortly after noon on Sept 17, broadly unchanged from when the market opened.
Still, the Fed’s return to rate hikes could cap STI gains by raising the returns from bonds and other US-denominated assets, making them more attractive than equities, analysts said.
Higher bond yields can hurt real estate investment trusts by raising refinancing costs and making their dividends less attractive than safer government bonds.
Singapore banks may initially benefit if higher market rates support their lending margins, but that advantage could be offset if prolonged tightening by the Fed weakens loan demand, increases bad-debt risks or causes losses on their bond holdings.
DBS shares traded at $76.80 at noon on Sept 17 after jumping to an intraday high of $77.30 in the morning. OCBC shares traded at $31.19 at noon, while UOB was trading at $41.75, up 1.3 per cent from the market open.
