USD/SGD drops following Fed rate cuts
The US Federal Reserve rolled out an emergency interest rate cut of 50 basis points, bringing down the Fed Funds Target rate (FFTR) between a range of 1.00% and 1.25%
The USD/SGD dropped below S$1.38300 on Wednesday as the US Dollar (USD) continues to weaken post-US Fed rate cuts.
On Tuesday 03 February, the US Federal Reserve – the country’s central bank – rolled out an emergency interest rate cut of 50 basis points, bringing down the Fed Funds Target rate (FFTR) between a range of 1.00% and 1.25%.
The rate reduction has come hot on the heels of last week’s record-setting stock market correction – the S&P 500 index fell 12% in just six days, the fastest in history – thanks to a worsening coronavirus situation.
Jerome Powell, the Federal Reserve Chair, said in a press conference following the announcement that ‘the coronavirus poses evolving risks to economic activity’, even though the ‘fundamentals of the US economy remain strong’.
The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy, he added.
He did not provide any indication when asked if further cuts will take place in the upcoming Federal Open Market Committee (FOMC) taking place on 17 and 18 March.
This is the first rate cut occurring in between scheduled FOMC meetings since the 2009 global financial crisis.
Like the USD/SGD, the USD/JPY also continues to face downward pressure, as global risk sentiments remain soft amid the contagion’s seemingly unstoppable spread. On 03 March, the USD/JPY fell to a six-month low of ¥107.15.
The USD has since regained some ground in the wee hours of Thursday morning SGT, as markets anticipated further interest rate cuts by other major central banks. The USD/SGD rose over 20 pips, or 0.23% to S$1.38625 as of 11.55am on 05 March.
UOB forex analysts said that the USD is ‘still in oversold territory’, and is not showing signs of stabilisation just yet.
From here, there is room for the USD to probe the 1.3820 level but 1.3800 is unlikely to come into the picture. On the upside, a move back above 1.3880 (minor resistance is at 1.3860) would indicate the current weakness has stabilised, they wrote.