Vulnerable SGD at risk of a substantial sell-off as interest rates rise

The greenback will continue to get stronger versus the SGD.

The Singapore dollar is vulnerable to a sell-off as interest rates rise, a report by Barclays warned.

According to Barclays, the recent spike in SIBOR shows that liquidity conditions are beginning to tighten. This trend will persist in the longer term on back of expectations that the US Fed will raise its rates by the second half of the year.

“The USD strengthening against the SGD could theoretically result in substantial capital outflows. Our forex strategist believes that the high sensitivity of the SGD to USD and the risk of monetary easing means that the SGD remains vulnerable to a selloff,” stated the report.

“The explicit management of the SGD against a basket of trade partner currencies necessarily means a high sensitivity of spot USDSGD to movements in the broad USD. Given our projections of more EURUSD weakness, we expect USDSGD to continue to climb,” the report added.