FX Daily: A higher for longer USD
EUR and SGD looking at policy pause in October.
Group Research - Econs, Philip Wee26 Sep 2023
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USD appreciated a fourth session ahead of Fed Chair Jerome Powell’s town hall with educators on 28 September. At the FOMC meeting on 20 September, the Fed kept the door open for a hike this year and projected fewer rate cuts in 2024. The Fed’s “higher for longer rates” pledge lifted the DXY by 0.4% to 105.95 overnight, its highest close since 29 November. The US Treasury 10Y yield firmed 10 bps to 4.53%, a level not seen since October 2007. Gold prices fell 0.5% to USD1916/oz, languishing near the floor of its month-long range between 1900 and 1950. Today, consensus expects the Conference Board’s consumer confidence index to decline to a four-month low of 105.5 in August from 106.1 in July. 

EUR/USD depreciated 0.6% to 1.0593, below 1.06 for the first time since mid-March. European Central Bank member Francois Villeroy de Galhau (France) said that monetary policy was now symmetrically balanced after last week’s hike between the risk of doing too much and triggering recession and doing too little to lower inflation. On 29 September, consensus sees the Eurozone’s CPI inflation estimate slowing from 5.2% in August to 4.5% YoY in September, converging with the ECB’s 4.5% refi rate. If so, the ECB could be looking at its first pause at the governing council meeting on 26 October. Villeroy favours a soft landing and did not want more hikes on top of the cumulative 450 bps rise since July 2022. Other ECB speakers this week are President Christine Lagarde on Friday and Chief Economist Philip Lane today. Look for them to join Villeroy in signalling a preference to keep rates restrictive at current levels for as long as needed to bring inflation to the 2% target. Hence, we cannot rule out the EUR testing 1.0484 or the year’s low in early January.

We project USD/SGD pushing into a higher 1.36-1.39 range in 4Q23. We expect the Monetary Authority of Singapore to keep the three parameters (mid-point, slope, and width) of the SGD NEER policy band unchanged again at its semi-annual policy meeting in October. The progressive appreciation of the policy band from October 2021 to October 2022 is working to lower inflation. Yesterday, Singapore’s CPI inflation eased to 4% YoY in August, its lowest since January 2022. Core inflation fell to 3.4% YoY, on track to end the year at the 2.5-3% range projected by the MAS. In August, the Ministry of Trade of Industry narrowed the 2023 GDP growth forecast to 0.5-1.5% from 0.5-2.5% on weak external demand despite the recovery in air travel. This month, the Manpower Ministry warned that the labour demand could cool more this year from declining job vacancies. The government is also monitoring for unpredictable and dangerous outcomes from the intense US-China rivalry and competition.

Quote of the day
“Reality is merely an illusion, albeit a very persistent one.”
     Albert Einstein

26 September in history
In 1905, Albert Einstein published the third of his Annus Mirabilis papers, introducing the special theory of relativity.


Philip Wee

Senior FX Strategist - G3 & Asia
[email protected]


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