Singapore dollar Strength Continues:
USD/SGD is oversold, as it recently tested key support on the lower edge of the channel. This suggests that the four-month slide may be losing steam given how close USD/SGD is to its 2018 low. A positive momentum divergence (lower lows in price associated with a slowdown in 14-day Relative Strength Index) indicates that this decline might not be as strong as previously thought.
It’s possible that there may be a temporary slowdown or pause in the decline of the USD/SGD, especially in light of the US Federal Reserve’s interest rate decision today. The market widely anticipates the Fed to raise rates by 0.25% to a range of 4.5%-4.75% and investors will pay close attention to the accompanying statement. If the rate hike is viewed as aggressive, it could result in a temporary increase in the value of the USD globally. Currently, futures markets predict that interest rates will reach around 4.9% due to growing concerns that US inflation may be reaching its peak.
Inflation is probably past its peak, says RBA:
The Reserve Bank maintained its prediction of 8% peak inflation towards the end of last year and anticipates a decrease in inflation throughout 2023. During a parliamentary hearing on the rising cost of living, RBA’s head of economic analysis, Marion Kohler, stated that the central bank was reassessing its economic projections and that inflation has already reached its peak. Official data showed a 7.8% yearly increase in consumer prices during the December quarter. Since May 2022, the RBA has been increasing interest rates as a response to the surging inflation.
Record Trade Deficit in Japan:
Japan’s Ministry of Finance announced a 2022 balance of trade (exports minus imports) deficit of ¥20.0 trillion, which is larger than the 2014 deficit of ¥12.8 trillion and marks the largest trade deficit in available records dating back to 1979. This marks the second consecutive year that Japan has faced a trade deficit. The increase in imports is largely due to the depreciating yen and rising energy prices caused by Russia’s invasion of Ukraine.
Lebanon to devalue the currency by 90%
Lebanon’s central bank governor, Riad Salameh, announced that the country will adopt a new official exchange rate of 15,000 pounds per US dollar on February 1st, which represents a 90% devaluation from the current official rate that has remained unchanged for 25 years. The change from the previous rate of 1,507 to 15,000 is still much lower than the parallel market rate, where the pound is currently trading at around 57,000 per dollar.
Salameh stated that the new rate will apply to banks, resulting in a decrease in the equity of the institutions that were central to the country’s financial crisis in 2019. Analysts believe that the change will have a limited impact on the wider economy, which is becoming increasingly dollarized and where most transactions occur according to the parallel market rate. The pound has lost approximately 97% of its value since it started to deviate from the 1,507 rate in 2019.