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Singapore dollar hits 5-week low on Q2 contraction, Korean won at 2-year trough

Tuesday, July 14, 2015 - 10:25
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The Singapore dollar hit a five-week low on Tuesday as a surprising economic contraction revived expectations that the city-state's central bank may ease monetary policy.

[SINGAPORE] The Singapore dollar hit a five-week low on Tuesday as a surprising economic contraction revived expectations that the city-state's central bank may ease monetary policy.

South Korea's won touched a two-year trough, leading losses emerging Asian currencies, as investors shifted their focus to guessing when the US Federal Reserve will start raising interest rates.

The Singapore dollar lost as much as 0.4 per cent to 1.3622 per US dollar, its weakest since June 8, after disappointing second-quarter growth data.

Gross domestic product shrank 4.6 per cent in the second quarter from the previous three months on an annualised and seasonally adjusted basis, government data showed. Sluggish global demand hurt the manufacturing sector of the trade-dependent economy.

The figures spurred views that the Monetary Authority of Singapore (MAS) may ease policy, analysts said.

"Markets will have to start pricing in a risk of an easing by MAS into October," said Sean Yokota, head of Asia strategy for Scandinavian bank SEB in Singapore.

SEB's three-month target of the Singapore dollar is 1.4000, Mr Yokota added.

In a Reuters poll on June 26, economists had expected the Singapore's central bank to keep monetary policy steady at its next scheduled policy review in October, seeing a recovery in core inflation later this year.

At its April meeting, the MAS held off from further stimulus after a surprise easing in January.

The won lost 0.9 per cent to 1,140.7 per dollar, its weakest since July 2013, as offshore funds sold the currency amid overall strength in the US dollar.

The South Korean currency recovered some of earlier losses as local exporters bought it for settlements on dips.

REUTERS