Singapore Dollar: Upside Momentum Against USD Slows – UOB

UOB Market Strategists Quek Ser Leang and Lee Sue Ann believe that USD/SGD is still under mild downward pressure, but the downside momentum has clearly slowed. With short-term technical momentum indicators turning neutral, the pair lacks clear directional drivers in the near term and is likely to consolidate narrowly around the 1.2700 level.

**Short-Term Momentum Exhausted, Pair Stuck in Range**

The analysts note that although USD/SGD was previously in a mild downtrend, the recent decline has stalled significantly. Market bulls and bears have reached a temporary balance around current levels, leading to lower volatility in the pair. In the absence of fresh catalysts to break the impasse, USD/SGD is expected to continue trading within a narrow intraday range near 1.2700, reflecting a typical consolidation pattern.

**SGD Fundamentals Solid, but Policy Shift Premature**

The Singapore dollar's own resilience is one factor limiting USD/SGD upside. The Monetary Authority of Singapore manages inflation via the nominal effective exchange rate, which remains firmly in the upper half of the policy band. Although Singapore's core inflation has eased from its earlier peak of 5.5%, the slowdown has been slower than expected, and recent increases in energy and rice prices, along with a tight labor market, keep the inflation outlook uncertain. Market consensus suggests that the timing is not yet ripe for MAS to loosen its FX policy, providing policy support for the Singapore dollar.

**Complex External Environment for USD, Awaiting Clear Signals**

Externally, the broader USD trend remains uncertain. Recent US economic data has outperformed some major economies, briefly lifting the dollar. However, some argue that as US growth may slow in the future, the dollar's strength could reverse later, undermining the Fed's hawkish stance. Yet, this shift may take more time to be confirmed by data. Against this backdrop, USD/SGD is unlikely to see a trend-driven move in the near term.