The greenback strengthens against Singapore dollar, reversing broad weakening trend this year
The DXY index is up 1.9% since Jul 2, shrugging off the impact of tariffs
[SINGAPORE] The US dollar has climbed nearly 1.5 per cent in the past six days, reversing a downward trend that has persisted for much of this year.
The US dollar index (DXY) posted a high of US$109.956 on Jan 13, but gradually weakened throughout the year to a low of US$96.776 on Jul 2.
However, it reversed the trend in the past six days, climbing to US$98.634 as at Monday (Jul 28) for its highest close since Jul 17. For the year, it’s still at a 10.3 per cent decline from the January high.
“We suspect that the broad USD revival is a quiet acknowledgement that tariffs thus far had not affected the US economy as much as feared,” said Maybank in a note on Monday.
In tandem, most Asia currencies have retreated.
“With the trajectory of the greenback seemingly changing course, most Asian FX are trading on the backfoot with TWD leading in losses, followed by THB,” noted Maybank, referring to the Taiwan dollar and Thai baht. The Thai baht had also started falling back against the dollar, in the aftermath of the Thailand-Cambodia conflict.
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The Singapore dollar is no exception, with the greenback also strengthening against it this month. The USD-SGD currency pair has climbed 0.8 per cent, from S$1.2768 on Jul 23 to S$1.2868 on Tuesday.
As at Tuesday afternoon, it was at S$1.2870. The currency pair is still down around 5.7 per cent year to date.
“Today, USD could continue to rise, but the major resistance at 1.2900 may be out of reach for now,” said UOB analysts on the USD/SGD rate, adding that “any pullback is likely to hold above the ‘breakout’ level of 1.2820”.
What’s causing the dollar strength
Analysts said factors contributing to the dollar strength included a stabilising trade deficit, an expected unchanged Fed funds rate at the Fed meeting this week, and a relatively tight job market.
“The US trade deficit is expected to stabilise in June after the blowout in Q1 FY2025 resulting from the frontloading of imports to avoid higher tariffs,” said DBS analyst Philip Wee. He added that consumer confidence was expected to improve, reflecting less job insecurity and record-high US equities.
Eastspring Investment analysts also concurred that the easing of front-loaded imports to the US to avoid higher tariffs has eased, but warned that it would lead to “higher US goods inflation, particularly into Q4, and lower real consumer disposable income”.
Maybank analysts added: “As we head into August, the US economy remains resilient, the labour market is still relatively tight and this macroeconomic robustness is reflected in the stability of the greenback of late.”
Meanwhile, they said the “reality of fiscal constraints” had started to hit the UK, Canada, Japan and to some extent, Germany as well, potentially limiting the amount of fiscal spending and government for those economies. “This jarring contrast further underpinned the greenback,” they added.
While DBS’ Wee was positive about the DXY’s trend, pointing out that it closed above its 50-day moving average for the first time since February, he noted that it has yet to deviate far from the 98 level over the past month.
“US President Donald Trump remains a threat to the Fed’s independence, given his stepped-up attacks against Fed chairman Jerome Powell. Trump’s call for a significant decline in US rates to 1 per cent – below the European Central Bank’s 2 per cent – implies a weaker USD, which would complement the increased access to overseas markets enabled by his trade deals,” he said.
The next Fed interest rate decision is set to take place on Wednesday.
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