The Singapore dollar is gaining traction as a favoured currency trade for hedge funds and other option investors eyeing the upcoming US presidential election, according to a report by Bloomberg citing data from the Depository Trust & Clearing Corporation (DTCC).

Demand for one-month call options on the US dollar (betting on gains against the Singapore dollar) has surged, with the premium near its highest level since May 2023, according to the DTCC's data which shows that all currency trades close to or exceeding $100m on the USD/SGD pair this week have focused on call options, with expirations extending into late January 2025.

Unlike many central banks, which typically steer their economies by adjusting interest rates, the Monetary Authority of Singapore (MAS) uses the Singapore dollar’s nominal effective exchange rate, pegged to a currency basket of its key trading partners. This approach makes the Singapore dollar attractive for macroeconomic speculators, particularly for those seeing a Trump victory as a potential catalyst for the US dollar’s rise against Asian currencies.

The report quotes Mukund Daga, Barclays’ head of FX options for Asia, as saying: “The consensus seems to be that a Trump victory could strengthen the dollar broadly, but especially against Asian currencies.” And, according to Daga, hedge funds have been actively purchasing Singapore dollar call options with expirations within the next three months.

Additionally, traders are preparing for potential gains in the US dollar against other currencies like the euro and yuan, which could be impacted by renewed tariff measures if Trump secures another term.