Singapore Dollar Set to Gain Despite Hawkish Fed, Analysts Say

The Singapore dollar (SGD) is expected to appreciate, even as a hawkish US Federal Reserve drives increased US dollar borrowing costs and strengthens the greenback. This forecast comes due to Singapore's appeal as a "safe harbor" amidst global volatility, attracting significant capital inflows that are keeping the city-state's liquidity ample.

The gap between Singapore and US swap rates has reached a record, with the two-year Singapore dollar swap at a 246 basis point discount to its US counterpart. This divergence is likely to intensify, fueled by Singapore's robust economy and safe-haven capital inflows, partly due to the Iran war. Societe Generale's emerging Asia strategist, Galvin Chia, notes that these inflows have made SGD rates resilient despite rising global yields. The Monetary Authority of Singapore (MAS) is even anticipated by some analysts to tighten policy in July, which would effectively lead to currency appreciation.

Conversely, US rates are rising, with the swaps market pricing in an 80% chance of a quarter-point Fed rate hike this year, a significant shift from earlier expectations of two rate cuts. New Fed Chair Kevin Warsh's hawkish stance, focused on controlling inflation, has reinforced expectations for higher US interest rates, leading to a surge in demand for dollar call options. This has amplified the Singapore-US rate differential, which Winson Phoon, head of fixed-income research at Maybank Securities, believes will "remain deeply negative."

Julius Baer's 2026 market outlook also supports the strengthening of the Singapore dollar, with its head of research for Asia, Mark Matthews, forecasting appreciation and corporate earnings growth of around 8%. This, combined with an average dividend yield of 5% for the Straits Times Index, could provide an "excessive" 10% return in dollars. The report highlights that investors are increasingly turning to safe-haven currencies like the Swiss franc and Singapore dollar, perceiving them as more stable alternatives to the US dollar amidst geopolitical uncertainties.