The Singapore dollar rebounded modestly against the US dollar following the Federal Reserve’s decision to raise its benchmark interest rate on September 16, marking its first increase since July 2023. The US central bank raised the overnight rate by 25 basis points to a range of 3.75 percent to 4 percent and signaled plans for additional hikes in 2026 to address persistent inflation pressures.

Inflation in the United States remained elevated, with the Consumer Price Index rising by 3.4 percent in August, well above the Fed’s 2 percent target. During a news conference, Fed Chairman Kevin Warsh emphasized that inflation has been “too high... for too long.” The Federal Open Market Committee stated that the rate increase aims to promote a more timely return to the committee’s price stability goal.

Following the announcement, the Singapore dollar strengthened slightly against the greenback, moving from around 1.278 to 1.276, though the US dollar had appreciated against the local currency over the prior week. The dollar’s week-long rise was supported by higher short-term US Treasury yields and expectations of further rate increases. On September 17, the US dollar reached a seven-week peak against major currencies, driven by a surge in two-year Treasury yields, even as 10-year yields fell. Analysts attributed short-term yield pressures to anticipated future hikes, while long-term yields remained elevated due to inflation concerns, heavy government borrowing, and financial uncertainties.

The Straits Times Index (STI) initially dipped but recovered to close at 5,660.52 points on September 17, gaining 0.5 percent. Market observers noted that while the rate hike may put a ceiling on equity gains—by making bonds and US assets more appealing—sectors such as banks could see mixed impacts. Higher rates might boost lending margins for Singapore’s banks but could also weigh on loan demand, increase credit risks, and lead to potential bond losses if tightening persists.

Real estate investment trusts (REITs) could face challenges as rising bond yields increase refinancing costs and reduce dividend appeal compared to safer government securities. Share performance on September 17 reflected some of these dynamics: DBS shares rose to close at $76.94 after reaching an intraday high of $77.30, OCBC shares ended largely unchanged at $31.28, and UOB shares gained 1.6 percent to $41.88.

Meanwhile, the Monetary Authority of Singapore’s policy continues to permit gradual appreciation of the Singapore dollar against a basket of currencies, contributing to underlying currency strength amid global financial shifts.