Currencies weaken across the board; eurozone crisis hits new low

The local currency fell above the $1.27 threshold, currently trading at $1.2767 against the US dollar.

IG Markets Singapore said:

The Singapore dollar has held steady against the greenback despite huge inflows into the US currency as the eurozone crisis hits a new low.

Traders panicked last night as news emerged that European finance ministers are drawing up contingency plans in case of a Greek exit.

This saw European markets collapse along with the euro, which has fallen to a near two-year low.

The local currency had been having a tough time against the US dollar and fell above the $1.27 threshold again this week and currently trades at $1.2767.

While this flies in the face of planned appreciation against the greenback, these are uncertain times and investors are always drawn to the safe haven of the US dollar.

GFT meanwhile reported (for 23 May 2012 trading):

It has been an extremely volatile day in the financial markets. Currencies weakened across the board with the euro easily taking out its year to date low against the U.S. dollar. Stocks also sold off but the EUR/USD failed to benefit much from the end of day recovery that took equities well off its lows.

There have been no new developments with regards to Greece and perhaps this is the very reason why investors continued to sell euros. Throughout the European and North American trading sessions, there was a volley of speculation about whether the ECB, the Greeks and Europe in general are assessing and preparing for the consequences of a Greek euro exit.

In our opinion, it would be irresponsible for Europe, central bankers around the world and CEOs of major financial institution to not be actively evaluating the potential impact of a Greek exit and how to handle it.

As a result, we believe that none of the denials are credible. Instead, we believe that every major G10 nation and financial institutions are drafting up contingency plans in case Greece decides to drop the euro.

There is fear that Greece could make an announcement over the long weekend in the U.S., using the prolonged market closure to their advantage but we don’t believe they have the political will to make such a major decision before the election.

RBS, on the other hand, noted (for 23 May 2012 trading):

Disappointment over a lack of conclusion at the EU summit and, potentially, a denied report that EU governments were asked to prepare contingency plans should Greek exit the EUR weighted on higher beta currencies during the US morning.

An afternoon rally in equities and risk oriented currencies broadly didn't have a particular catalyst, but the EUR remained broadly weaker after hitting a new 2012 low of 1.2545 versus the USD during the US morning.

Ahead is the May PMI survey data in the Euro-area, which will likely play a large role for future ECB policy decisions, as the data will be incorporated into the ECB's June forecasts.

The German IFO survey for May will also be of importance, as a softer reading could contribute to downside risks for the Euro-area economic outlook. While we see the environment as ripe for a EUR/USD correction higher, we expect the softer EU data to keep downward pressure on the EUR in tact for now.

Finally, the HSBC Flash Manufacturing PMI data will come out ahead of the official manufacturing release on 31 May. While the overall figure tends to be below the official PMI print, the direction (rise or fall) of the HSBC index has a fairly strong correlation with the direction of the overall index.