The Monetary Authority of Singapore is likely to maintain the same parameters for the SGD NEER policy band in its upcoming review. The USD/SGD exchange rate is expected to remain above 1.2675. According to a Senior FX Strategist at DBS Bank, the three main parameters—slope, mid-point, and width of the SGD NEER policy band—will likely stay stable. Current models indicate that the SGD NEER is 0.25% below its ceiling, suggesting there’s little chance for a significant drop in USD/SGD unless the global USD weakens more broadly.

Stability Expected in 2025

In early 2025, there were strong expectations that the Monetary Authority of Singapore would keep its policies the same. The SGD was not anticipated to strengthen much, with the USD/SGD exchange rate expected to remain steady. This outlook created a calm environment for the market ahead of last year’s policy review. Looking back, the MAS did keep the slope, width, and center of its policy band unchanged throughout 2025. This decision helped keep the currency in a stable range and significantly reduced volatility. The one-month implied volatility for USD/SGD options is now close to a low of 4.3%. Such low volatility indicates that the market isn’t expecting any major surprises from the upcoming policy meeting. As we approach the meeting on January 29th this year, the economic situation supports a steady approach. Singapore’s core inflation has dropped to 2.9% year-on-year, far from its high points, relieving some pressure for further policy changes. With GDP growth expected to be a modest 2% to 3% for 2026, the central bank has little reason to disturb the market.

Derivative Trading Strategies

For derivative traders, this environment suggests that selling options to gather premiums could be a good strategy. Short straddles or strangles on USD/SGD, focusing on the current spot rate, might benefit from the anticipated stability after the announcement. Although the low implied volatility means premiums aren’t high, it also shows the market’s strong belief that the currency will stay within a narrow range. However, it’s essential to monitor the broader trend of the US dollar. Any significant shifts globally could still influence the pair. Traders might consider purchasing inexpensive out-of-the-money options as a hedge against an unexpected policy announcement or a sudden move in the dollar index. Given the current situation, any break beyond the established trading range would likely indicate a significant change in market sentiment. Create your live VT Markets account and start trading now.

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