SGD likely to benefit from potential euro strength post March 4 Italian General election, says Scotiabank

The Singaporean dollar is expected to benefit from the EUR’s potential strength particularly after the 2018 Italian General Election set for March 4, given its tight correlation with the single currency. The ECB said in its Economic Bulletin last Thursday that the eurozone economic expansion continues to be solid and broad-based across countries and sectors.

The city-state’s economy grew 3.1 percent y/y in Q4 compared to the market estimate of a 2.6 percent rise, bringing overall annual growth for 2017 to 3.5 percent that was more than double the initial GDP forecast. While Singapore’s elevated PMI indicates an economic recovery in the nation, a possible GST rate hike would generate a higher inflation, Scotiabank reported.

The MAS is likely to sound more hawkish at its April semiannual monetary policy meeting, which could prop up the SGD versus a basket of currencies in the weeks ahead. According to our estimate, the SGDNEER is now trading in the middle of the upper half of the MAS SGDNEER policy band with a zero slope.

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