This article was first published on DollarsAndSense.sg

The Fed’s decision to hike interest rate might have send the US Dollar (USD) appreciating to its highest level since year 2003 against the Euro. It has also sent the Straits Times Index to its largest fall in three weeks, a clear indication that market participants are worried about how the interest rate hike will affect Singapore’s economy.

There is a saying that goes “if the US economy sneezes, Singapore’s economy will catch a cold”. As much as we would like to think we are resilient on our own, we are not.

The Fed has made their decision, and here are four ways that decision will impact us in Singapore.

Travelling to the US can wait

Singaporeans who have plans to travel to the United States this holiday season are expected to spend more. The prospect of three more rate hikes next year has seen the greenback appreciating to a 14-year high against major currencies.

Borrowers to suffer

An increase in interest rate by the US Federal Reserve will cause a ripple effect that may result in a rate hike for almost everything. This includes your mortgages and business loans, which would translate into tougher times ahead for borrowers.

Borrowers in Singapore will have to better prepare themselves for these hikes and it’s likely that the interest rate hike will be priced in by the financial institutes.

Gold price plunge

Gold price tends to drop when US interest rate increases. That is because gold is usually held as a hedge for the USD, and an increase in interest rate means that it is less attractive to hold gold.

Gold traders might have been caught off guard by the Fed’s announcement. The decision has sent gold price plunging to a 10-month low by the end of the US trading session.

Business owners may experience an increase in demand

With an increase in interest rate, it is now cheaper for people and companies from the US to buy Singapore’s exports. Given the close trading relationship between Singapore and the US, it’s quite likely that business owners in Singapore may experience an increase in demand for their good from the US.
 

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