SIBOR hits 4-year high as Singapore Dollar bows lower to the USD

The SIBOR has risen 49% since the first of December.

The continued weakness of the Singapore Dollar has pushed the 3-month SIBOR to its highest value since April 16 2010.

According to data released by the SGX, the SIBOR rose to 0.639% last week, representing a 49% jump since the first of December.

The exchange rate between the Singapore Dollar and US Dollar on 5 January 2015 was pegged at 1.336, a level not seen since 20 September 2010 at which it hit 1.334. 

According to CIMB, the recent spurt of USD strength is driven by a sudden panic on the EUR. The USD’s strength might accelerate if Europe breaks down on Grexit fears, thoughit is just as likely to subside if the current panic in Europe blows over.

“With the US Fed fund rates stuck at zero-bound, it is unlikely that SIBOR will gallop away. We see recent SIBOR and SOR movements are more forex flow-driven. In the recent week, expectations of USD strength became accentuated because “Grexit” is killing the EUR, putting EUR in the same bear camp as the JPY; USD is thus the only currency for flows to move to.

"S$ SOR, being the free-market rate set by all forex participants, is galloping away. S$ SIBOR is also moving up in a more measured way, being the rate set by the three local banks. As long as expectations of dollar appreciation remains high, S$ SIBOR will move higher. That move though is capped by US Fed fund rates still at zero-bound. If euro fears die down, the current period of dollar strength could pause and likewise, S$ SIBOR could also see a slight retreat,” stated CIMB.