Greenback loses ground against the Singdollar

The greenback lost ground against the Singdollar and regional currencies yesterday as the US Federal Reserve disappointed investors by sticking to its plan of raising interest rates despite the strengthening US economy.

The US central bank raised its benchmark interest rate on Wednesday by 0.25 per cent to a target range of 1.5 per cent to 1.75 per cent.

It also said it expected at least two more increases this year, even as it raised its growth forecasts for the world's largest economy.

That disappointed market watchers, who had widely expected the Fed to announce a fourth rate hike this year, amid growing confidence that tax cuts and government spending will lift growth and inflation.

Higher US interest rates tend to raise borrowing costs for households and companies in Singapore, but a strengthening US economy is good news for exporters.

The greenback sank in response to the Fed's announcement, falling 0.3 per cent against the Singdollar within the hour after Fed chair Jerome Powell's press conference, noted Phillip Futures investment analyst Samuel Siew.

The greenback reached a five-day low of $1.3126 yesterday. Mr Siew said the US dollar will likely face further headwinds from trade issues.

The Trump administration is also weighing sanctions against China.

"This leads to market concerns and fears of a possible trade war as China is the largest holder of US Treasury bonds. Should China reduce Treasury bond holdings in retaliation, the US dollar will weaken," Mr Siew noted. - CHIA YAN MIN