SINGAPORE: The US dollar rallied on Monday (Jun 18) after the market digested a flurry of news and investors bet the United States and China would avoid a full-blown trade war.
The dollar index, which measures the greenback against a basket of six major currencies, edged up 0.2 per cent to 94.985, hovering close to a seven-month high touched in the previous session.
The greenback also rose against the Singapore dollar, touching a six-month intraday high of 1.3535, according to Bloomberg data. This is the highest it has been since Dec 13 last year.
Year-to-date, the US dollar has gained 1.13 per cent against the Singapore dollar.
“(A) further rise in USD yield off the back of more Federal Reserve rate hikes, a moderation of strong Asian export growth momentum and on-going tense US-China trade relations are all key drivers that will drive USD stronger and Asian currencies weaker in the second half of 2018,” UOB said in a research note.
“Overall, we see a slow climb in USD/SGD towards 1.36. We forecast USD/SGD at 1.34 in 3Q18, 1.35 in 4Q18 and 1Q19 and 1.36 in 2Q18,” UOB added.
On top of last week's Fed, ECB and the Bank of Japan policy meetings, the currency markets also weighed a US-North Korea summit and the renewed trade tensions between the world's two biggest economies.
The greenback navigated through those events, last of which was a decision by the United States on Friday to enact tariffs on US$50 billion in Chinese goods. Soon afterward, China's official Xinhua news agency said Beijing would impose 25 per cent tariffs on 659 US products, ranging from soybeans and autos to seafood.
"The reaction by currencies to the trade developments has been mostly limited as the US measure and China's response were in line with expectations," said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.
"A further escalation of US-China trade tensions is of course a risk scenario. But the current tariffs, even if implemented, will hardly dent the global economy and the market also has to ponder about a scenario in which the two countries try to defuse tensions."