Singapore dollar will be “most affected” by expected euro downturn: Maybank Kim Eng

Analysts are bearish on regional currencies.

The Singapore dollar might be the biggest casualty among Asian currencies if the euro declines on back of expected quantitative easing by the European Central Bank (ECB).

The ECB is widely expected to launch its own form of quantitative easing after the the Swiss National Bank’s (SNB) shocking decision to remove the franc’s rate cap last week.

“Given the higher probability of an ECB move soon, we expect the currencies like the SGD to be most affected by an expected EUR decline,” Maybank Kim Eng wrote.

The SNB’s move prompted safe-haven flows into AAA-rated debt, which should be supportive of the SGD in the near-term.

However, in the medium term, a reversal seems likely as the SGD comes under pressure on the back of persistent weakness in the JPY and from the EUR should the ECB initiate their own QE.

“Fundamentally, growth should remain lacklustre but ongoing economic restructuring amid a tight labour market should keep core inflation elevated even as oil prices recede, which should be a sufficiently high hurdle to any changes to the “modest and gradual appreciation” policy stance, though a widening of the policy band remains a possibility. We remain bearish on the SGD,” the report stated.