[SINGAPORE] According to a Bloomberg examination of the Singapore dollar's interaction with other markets, its outperformance in the first quarter of 2025 is likely to continue in the short term.
The local currency benefits the most in the region when the Bloomberg Dollar Spot Index falls and when the euro gains value against the US dollar. That dynamic is presently unfolding.
The Singapore dollar’s resilience is further underscored by its correlation with regional trade flows. As a key financial hub, Singapore often sees increased demand for its currency during periods of global uncertainty, as investors seek stability in its well-regulated markets. This trend has been particularly evident since the start of the year, with capital inflows into Singapore’s equity and bond markets supporting the currency’s strength.
The US dollar fell in Asian trading on April 3 on concerns that the sweeping tariffs Trump proposed overnight on all US imports will harm US economy and exacerbate inflation, leading to sharper-than-expected Federal Reserve rate reduction.
The Bloomberg Dollar Spot Index declined 0.5 percent, while the US dollar fell 0.15 percent against the Singapore dollar to 1.3437 as of 11.27am. Following the tax announcements, the euro jumped, rising 0.63 percent to US$1.091625.
Analysts note that the euro’s rebound is also tied to renewed optimism about the European Central Bank’s (ECB) monetary policy trajectory. With inflation in the eurozone showing signs of moderation, expectations are growing that the ECB may pause its rate-hiking cycle sooner than anticipated, reducing pressure on regional currencies and indirectly benefiting the Singdollar through its trade-weighted basket.
Traditional safe-haven currencies, such the Japanese yen and the Swiss franc, rose. The yen advanced over 1% to 147.99 per US dollar, while the Swiss franc strengthened to 0.87815 per dollar.
In the first quarter, the Singapore dollar outperformed most Asian currencies save for the yen, rising 1.7% as questions about US exceptionalism weighed on the greenback, while the euro soared on the region's defense spending plans. The rise occurred even as the Monetary Authority of Singapore, which relies on the currency rate as its primary policy instrument, relaxed its policy settings for the first time in over five years, in January.
Singapore’s robust current account surplus, which stood at 18.2% of GDP in Q4 2024, has also played a pivotal role in supporting the currency. This structural strength provides a buffer against external shocks and reinforces the Singdollar’s appeal during periods of global volatility, such as the current trade policy upheaval.
"The Singapore dollar's outperformance versus peers may continue in the near term, buoyed by its status as a regional safe haven amid rising global trade tensions," said Stephen Chiu, Bloomberg Intelligence's head Asia foreign-exchange and rates strategist.
Its outperformance has also been aided by "Singapore's FX-basket policy, with the Singapore dollar nominal effective exchange rate still on an appreciation bias against the basket of currencies of its top trading partners," BI's Chiu said. Singapore's major trading partners in 2024 were China, Malaysia, and the United States, according to the country's statistics bureau.
Recent data from the Singapore Tourism Board has shown a stronger-than-expected recovery in visitor arrivals, further bolstering services exports and adding to the currency’s fundamental support. This rebound in tourism, coupled with steady demand for Singapore’s pharmaceutical and electronics exports, has helped offset softer manufacturing activity in other sectors.
Demand for the Singapore dollar may remain strong even as expectations for additional MAS policy easing build, with core inflation growing at its slowest rate since June 2021 in February. Economists from Barclays, Bank of America, and Citigroup are among those urging the MAS to soften its Singdollar policy further in April.
Meanwhile, the US dollar is under pressure as investors question the currency's haven status as a result of President Donald Trump's tariff plans, and hedge funds have become positive on the euro for the first time since September.
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