FX Daily: US CPI today, MAS policy review tomorrow
US CPI firm today, MAS to re-centre policy band higher
Group Research - Econs, Philip Wee13 Oct 2022
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Today, the Fed will look past the US CPI inflation data and hike by 75 bps to 4% at the FOMC meeting on 2 November. According to the FOMC Minutes for the 21 September meeting, many Fed officials emphasized that the “cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.” Bloomberg consensus expects headline inflation to slow to 8.1% YoY in September from 8.3% in August, still too high above the 2% target. More importantly, second-round effects are expected to drive core inflation from 6.3% to the year’s high of 6.5%. Yesterday, PPI inflation remained high at 8.5% YoY in September, more than the consensus to slow to 8.4% from 8.7%. Excluding food and energy prices, PPI was unchanged at 7.2%.

However, the market is looking for a smaller 50 bps hike to 4.5% at the last FOMC meeting on 14 December. According to the Summary of Economic Projections on 21 September, the Fed projected rates rising to 4.4% this year and 4.6% next year. Yesterday, Fed Governor Michelle Bowman said a slower rate hike pace might be appropriate if inflation declines. Unfortunately, she found it challenging to provide precise guidance on the rate path because inflation was simply too high amidst an uncertain outlook. Chicago Fed President Charles Evans suggested that hikes may pause slightly more than 4.5% in early 2023. However, all agreed that there would be no rate cuts next year despite recent financial market volatility over the GBP and global recession fears by the IMF. Last week, the US employment rate fell to 3.5% in September from 3.7% in August. The Atlanta Fed’s GDPNow Index expects the US economy to exit its technical recession with a 2.89% growth in 3Q22. 

Tomorrow, we expect the Monetary Authority of Singapore to recentre the SGD NEER policy band higher a third time this year. CPI inflation rose to 7.5% YoY in September, above the official 5-6% forecast for 2022. Similarly, core inflation also exceeded the 3-4% forecast at 5.1%. Our economist expects the Singapore economy to avert a technical recession. He forecasts advanced GDP expanding by 0.9% QoQ sa in 3Q22 after the 0.2% contraction in 2Q22. In YoY terms, GDP growth will slow to 3.7% from 4.4%. Despite the tightening in the SGD policy this year, USD/SGD has not been able to fend off the aggressive rise in the USD. However, thanks to the firm SGD policy, USD/SGD rose only 6.4% YTD vs the 18.3% surge in the DXY this year. As things stand, USD/SGD will likely hold a 1.41-1.45 range if DXY stays between 110 and 115. 

Quote of the day
“As I grow to understand life less and less, I grow to love it more and more.”
      Jules Renard

13 October in history
Greenwich in London established as the universal time meridian of longitude in 1884.


Philip Wee

Senior FX Strategist - G3 & Asia
[email protected]


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