The US dollar resumed its weakening trend despite market expectation for further interest rate hikes. Different Fed Governors have questioned the perception that higher interest rate is positive for USD. They have also highlighted the need to increase domestic savings, which implies a continuation of the Fed's measured interest rate hikes, and the US dollar to depreciate to curb the rising trade deficits.

The Euro has strengthened recently amid hawkish tone from ECB on interest rates even though there is scant evidence to support such a hawkish stance. Unsurprisingly, BOE left interest rate unchanged in Oct on the back of sluggish housing and retails sales figures. We still expect further rate hikes from the BOE, although recent data has weakened significantly and as such the GBP is likely to underperform the EUR and AUD.

The AUD has benefited from poor US employment data and the re-election of John Howard as Prime Minister. Reserve Bank of Australia is expected to resume its interest rate rise and there is growing optimism on the economy.

In Singapore, The Monetary Authority of Singapore left its policy for a gradual and modest appreciation of the Sing dollar intact. Given our expectation that the US dollar will continue to decline in the month's ahead, this should result in a significant USD/SGD decline going forward.