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The Monetary Authority of Singapore delivered a dovish tilt in its decision to maintain the three parameters – slope, mid-point, and width – of its SGD NEER policy band. The central bank revised this year’s forecast for CPI All-Items to 2-3% from 2.5-3.5% previously. The condition for easing policy in the future appears to reside in its assumption for core inflation to decline discernibly in 4Q24 and towards 2% in 2025. The statement highlighted that the seasonally adjusted core inflation quarter-on-quarter has declined to an annualised 2.1% in 2Q24, amid moderate imported inflation and easing domestic cost pressures, with expectations for it to be lower in 2H24 vs. 1H24. Given its sanguine economic outlook and lower inflation projections, the SGD NEER has and should continue to hold in the upper half of the policy band. Per our model, this should keep USD/SGD below 1.35 or the level implied by the mid-point of the SGD NEER policy band. Looking ahead, we see the door opening for USD/SGD to trade in a lower 1.32-1.34 range later in the year on the drop in Singapore’s core inflation and a weaker DXY from the two Fed cuts that we expect in the remainder of 2024.
USD/JPY fell to a two-month low of 152 during the European session before a stronger-than-expected US GDP report lifted it to 154. However, markets were unconvinced that the unwinding of JPY carry trades has run its course. Although US advance GDP growth doubled to an annualized 2.8% QoQ saar in 2Q24, the S&P 500 and Nasdaq Composite indices fell a third session by 0.5% and 0.9%, respectively. Investors could not shake off the increased uncertainties surrounding the November US Presidential elections. Following President Joe Biden’s exit, the presidential campaign has become less one-sided, with Democrat candidate Kamala Harris and Republican candidate Donald Trump offering divergent domestic and foreign policy directions. Looking for today’s US PCE inflation to mirror the softer CPI inflation a fortnight ago, the futures market increased the probability of a September Fed cut to 108% from 104.5% a day earlier.
This month’s aggressive unwinding of JPY carry trades, especially against the commodity-led currencies, was triggered by a combination of events. First, the USD’s resilient outlook was hurt by a slower US CPI inflation and a higher unemployment rate fuelling bets for a Fed cut in September. US presidential candidate Donald Trump also decried the JPY’s massive weakness. Second, markets suspected the Bank of Japan intervened in the currency markets amid expectations for more policy normalization announcements at next week’s BOJ meeting. Third, China’s economic recovery prospects became uncertain again, hurting commodity prices. The People’s Bank of China surprised with interest rate cuts on Monday and Thursday following the slowdown in real GDP growth to 4.7% YoY in 2Q24 from 5.2-5.3% in the previous two quarters. Against this backdrop, it did not help that Bank of Canada surprised with a rate cut yesterday, with the Reserve Bank of New Zealand delivering a dovish tilt at its last meeting on July 10.
Quote of the day
”If I want to knock a story off the front page, I just change my hairstyle.”
Hillary Clinton
26 July in history
In 2016, Hillary Clinton became the first female nominee for US President at the Democratic National Convention.
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Related insights
- Strong 2Q GDP Highlights Economic Resilience26 Jul 2024
- Research Library26 Jul 2024
- Singapore: MAS’s dovish hold26 Jul 2024
Related insights
- Strong 2Q GDP Highlights Economic Resilience26 Jul 2024
- Research Library26 Jul 2024
- Singapore: MAS’s dovish hold26 Jul 2024