The USD/SGD currency pair held not far from a 30-week high of 1.2991 on Thursday, as the US Dollar remained underpinned by expectations that the Federal Reserve could proceed with interest rate hikes later this year.
Market participants are positioning for tighter US monetary policy after Federal Reserve Chairman Kevin Warsh emphasized a strong commitment to bringing inflation under control, while stating that the broader economy is on solid ground.
This perceived hawkish tilt is reflected in the CME FedWatch tool, which shows that traders are discounting an 83.1% probability of rate hikes by the end of December.
Focus now shifts to the upcoming release of US Personal Consumption Expenditures (PCE) inflation data due later in the day. Market expectations point to headline annual PCE inflation rising to 4.1% in May from 3.8% in April, while core PCE inflation is projected to pick up to 3.4%.
The PCE data is expected to be a key input for assessing the future path of US interest rates, encouraging a more cautious tone across currency markets as the release approaches.
Beyond US monetary policy, traders are closely watching geopolitical developments in the Middle East. Lebanon and Israel are evaluating a US-backed proposal that would see Israeli forces transfer part of the Lebanese territory taken in their conflict with Hezbollah to Lebanon’s military.
Despite this diplomatic effort, tensions remain elevated. Israel’s defense minister, Israel Katz, said on Thursday that the Israeli military would not withdraw from southern Lebanon despite pressure from the US, as fighting in Lebanon continues to be an obstacle to permanent peace, per the Guardian.
The USD/SGD currency pair was last up 0.04% on the day to trade at 1.2969.
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