MUFG Bank’s analysis suggests a positive outlook for the Singapore Dollar (SGD). The currency’s prospects are bolstered by an improving sentiment towards the Chinese Yuan (CNY) and a weaker US Dollar (USD) environment.
The SGD is at a pivotal technical level, with potential gains towards the 1.260-1.2650 range if the US Dollar Index (DXY) continues to decline. Additionally, stable inflation rates contribute to the currency’s strengthening prospects.
Inflation And Currency Assessment
In Singapore, both headline and core inflation remained steady at 1.2% year-on-year in December. This stable inflation suggests a bottoming out, providing further support for the Singapore Dollar’s positive sentiment.
The outlook for the Singapore Dollar is constructive, largely supported by a softer US Dollar and improving sentiment around the Chinese economy. The US Dollar Index (DXY) recently slipped below 102.00 for the first time since last summer, following softer-than-expected US jobs data. We’ve also seen China’s industrial production figures for December 2025 beat expectations, bolstering regional currencies.
Here in Singapore, the inflation picture appears to have bottomed out, with both headline and core inflation holding steady at 1.2% in December 2025. This stability gives the Monetary Authority of Singapore room to maintain its policy stance, which has historically favored a strong currency. The USD/SGD currency pair is now at a pivotal technical point, with a potential to move towards the 1.2600 to 1.2650 range.
Strategic Considerations For Traders
This is a notable shift from the trend we observed for parts of 2025, when concerns over global growth pushed the USD/SGD pair to test levels around 1.38. The current downward pressure on the pair seems more sustained than the temporary dips we witnessed last year. This break of key support levels suggests a new momentum is building for the Singapore Dollar.
Given this view, traders could consider buying USD/SGD put options to position for a stronger Singapore Dollar. A strategy using strikes around the 1.2700 level with February or March 2026 expiries would capture the expected move over the next several weeks. This approach provides a direct, defined-risk way to capitalize on the potential downside in the currency pair.
