Over the past month the Pound Sterling to Singapore Dollar (GBP/SGD) exchange rate was trending within the range of 2.0715 to 2.1409.
Towards the end of last month, the Singapore Dollar was holding a position of relative strength. This was the result of a combination of dovish Federal Reserve interest rate hike bets and positive domestic data results. The end of June saw better-than-expected inflation on both a monthly and annual basis. In addition, Singapore’s Industrial Production bettered estimates on a yearly and a monthly basis, and Bank Lending improved from the previous figure.
Also, the beginning of July showed manufacturing output eclipsed market expectations and Foreign Exchange Reserves edged higher.
As mentioned above, another contributing factor to Singapore Dollar strength at the beginning of the past month was dovish Fed rate hike bets. US economic data produced mixed results, but the geopolitical upheaval in Greece was having the most significant impact on Fed policymakers. As an emerging-market currency, the Singapore Dollar benefits from a soft US asset.
The Singapore Dollar’s gains were relatively short-lived, however, after a depreciation was triggered by less-than-ideal economic growth. Singapore’s second-quarter Gross Domestic Product came in at 1.7% on the year; just failing to meet with the median market forecast 1.85% growth. On a quarterly basis, Gross Domestic Product dived by -4.6% despite the market consensus of 0.9% growth. In conjunction with disappointing growth figures, the US Dollar began to strengthen as domestic data improved and Federal Reserve officials made increasingly hawkish statements. With futures traders bringing forward bets as to the timing of a Federal Open Market Committee (FOMC) rate hike, demand for the emerging-market Singapore Dollar softened considerably. Even much better-than-expected retail sales wasn’t enough to overshadow damp market sentiment.
During Thursday’s (July 23rd) European session, the Singapore Dollar dived versus its rivals in response to the US Dollar surge. Positive US jobs data caused rate hawks to predict a 4th-quaerter rate hike. Singapore’s Inflation Rate also disappointed having failed to meet with the market consensus on both a monthly and annual basis.
As we come to the end of July, the Singapore Dollar is likely to hold a weak position versus its major rivals on US Dollar strength. Although easing tension in Greece has caused increased demand for high-yielding, risk-correlated currencies, the US Dollar is likely to continue to strengthen as the FOMC moves closer to hiking the benchmark interest rate. For those invested in the Singapore Dollar; the final figure for second-quarter Gross Domestic Product will have the most significant impact on volatility.