25-8-2024 (SINGAPORE) The Singapore dollar has reached a milestone not seen in nearly a decade, strengthening to S$1.30 against the US dollar on 23 August 2024. This marks a significant appreciation from its position just a week earlier when it traded at S$1.3152 to the greenback.
The last time the Singapore dollar touched this level was in November 2014, underscoring the magnitude of the current shift in currency markets.
This surge in the Singapore dollar’s value comes in the wake of a pivotal announcement by Jerome Powell, the chair of the US Federal Reserve. Powell signalled a seismic shift in American monetary policy, indicating that the central bank is poised to cut interest rates come September 2024.
In a statement that sent ripples through global financial markets, Powell emphasised that the time had arrived “for policy to adjust”. This declaration heralds a significant pivot in the Fed’s strategy, moving away from its aggressive stance on inflation towards a more protective approach for the labour market.
The US dollar’s weakening is not isolated to its pairing with the Singapore dollar. Other Southeast Asian currencies have also seen notable gains. The Thai baht and Malaysian ringgit both climbed to their highest levels against the US dollar since the beginning of 2024, reflecting a broader regional trend.
The Federal Reserve’s current interest rate, held steady at 5.25 to 5.5 per cent since July 2023, represents the culmination of a series of rate hikes initiated in March 2022 to combat soaring inflation. However, Powell’s recent comments suggest a changing tide in this monetary strategy.
Speaking on 23 August 2024, Powell expressed confidence that inflation is now on a “sustainable path” back to the Fed’s target of two per cent. This comes after inflation rates had skyrocketed to seven per cent during the height of the Covid-19 pandemic.
While the US unemployment rate has crept up to 4.3 per cent, Powell was quick to clarify that this increase was primarily due to slower hiring rather than a surge in layoffs. He emphasised the Fed’s commitment to maintaining a robust job market, stating, “We do not seek or welcome further cooling in labour market conditions. We will do everything we can to support a strong labour market as we make further progress toward price stability.”
Looking ahead, financial analysts are projecting a substantial reduction in US interest rates. Estimates suggest rates could fall to a range of 3 to 3.25 per cent by the close of 2025, representing a decrease of more than two percentage points from current levels.
