Singapore dollar firms as Daly’s dovish tilt pressures USD; MUFG flags further USD/SGD downside if Powell echoes tone
The Singapore dollar advanced against the greenback as traders rotated into risk assets on rising conviction the Federal Reserve could begin cutting rates as soon as December. MUFG said San Francisco Fed President Mary Daly’s dovish remarks fueled the move, with USD/SGD vulnerable to additional losses if Chair Jerome Powell aligns with that message.
SGD gains as rate-cut bets narrow yield gap
The U.S. dollar softened after Daly signaled openness to lower policy rates and cautioned that labor-market risks are building. That guidance reinforced bets that the Fed may pivot sooner than expected, compressing dollar yield premiums and easing demand for the greenback.
MUFG noted a broader risk-on impulse alongside the shift in rate expectations, a supportive backdrop for Asia FX. The SGD, managed under the Monetary Authority of Singapore’s trade-weighted exchange-rate framework, typically benefits when U.S. yields decline and risk appetite improves. A firmer SGD also aligns with Singapore’s policy focus on dampening imported inflation via the currency corridor.
Fed communication now the swing factor for USD/SGD
Daly’s views are often seen as closely tracking Powell’s policy stance, according to MUFG, which has strengthened traders’ belief that an easing cycle is approaching. If Powell confirms a similar bias in upcoming remarks, the market could bring forward rate-cut pricing, deepening the dollar’s pullback and adding downside pressure to USD/SGD.
Conversely, any pushback against premature easing—especially if paired with firmer inflation or labor data—could steady the dollar and curb SGD gains. Front-end Treasury yields, core PCE inflation, and the next nonfarm payrolls print will be pivotal for FX direction into year-end.
Key Points
- USD softens as investors price in potential Fed cuts as early as December, lifting risk sentiment.
- SF Fed’s Mary Daly warns of labor-market downside risks and signals openness to lower rates.
- MUFG: USD/SGD faces further downside if Powell’s tone aligns with Daly’s dovish signals.
- Risk-on flows support Asia FX; a stronger SGD is consistent with MAS’s exchange-rate framework to manage imported inflation.
- Key catalysts ahead: Powell commentary, core PCE, NFP, and front-end U.S. yields.
Market context and outlook
FX volatility remains sensitive to policy communication as positioning leans into a dovish Fed path. With liquidity thinning into late-year, guidance from top Fed officials can punch above its weight in driving moves across G10 and Asia crosses. Should Powell validate a proactive easing narrative, dollar pairs with high carry sensitivity—USD/SGD among them—could extend lower as U.S. rate differentials compress.
Still, the bar for aggressive cuts remains tied to the trajectory of inflation and labor slack. A re-acceleration in price pressures or a resilient jobs backdrop would complicate the easing timeline, supporting a rebound in the dollar and reintroducing two-way risk in USD/SGD.
FAQ
Why did the Singapore dollar strengthen?
Bets on earlier Fed rate cuts increased after Mary Daly’s dovish comments, narrowing the U.S. yield advantage and encouraging risk-on flows into Asia FX, which supported the SGD.
What could push USD/SGD lower from here?
If Fed Chair Jerome Powell signals openness to near-term easing similar to Daly’s tone, markets are likely to price a faster cutting cycle. That would further weaken the dollar and pressure USD/SGD lower, MUFG says.
How does MAS policy factor into the move?
Singapore manages the SGD against a trade-weighted basket within a policy band. A modestly firmer currency helps contain imported inflation, so a softer USD and stronger SGD can be consistent with MAS’s framework when inflation risks are in focus.
What data are most important for USD/SGD near term?
Powell’s remarks, the core PCE inflation report, U.S. nonfarm payrolls, and front-end Treasury yields will likely set the tone for the dollar and USD/SGD into year-end.
What risks could reverse the SGD’s gains?
A hawkish Fed pushback, upside surprises in U.S. inflation or jobs, or a broader risk-off episode—such as equity drawdowns or geopolitical shocks—could bolster the dollar and lift USD/SGD.
Reported by BPayNews.
