Currency Briefing - what you need to know for Wed May 16, 2012

The local currency loses ground against the US dollar as the Greenback strengthens against most currencies.

IG Markets Singapore said:

The Singapore dollar continues to lose ground against the Greenback breaking through a key resistance level of $1.26 overnight.

Risk sentiment continues to take a battering. Last night the Greeks failed to form a coalition government sending markets into another downward spin.

Risk assets have all fallen with investors backing the safe-haven of the US treasuries and German bunds.

At times of panic the US dollar is the favoured currency to hold and it is strengthening against most currencies, particularly weaker Asian currencies.

The US dollar currently buys S$1.2624 with more upside identified due to the eurozone crisis.

RBS meanwhile noted (for 15 May 2012 trading):

The USD remained the beneficiary of continued worries concerning Greece's political situation and decent domestic data releases. Equity indexes closed modestly lower and the USD strengthened versus all of its G10 counterparts.

EUR/USD broke below 1.2750 while USD/JPY stayed above 80 for most of the session. AUD/USD remained below parity while GBP/USD dipped below 1.60 late in the session.

In our latest Global Currency Weekly, we note flexibility in exchange rate policy could aid the adjustment process to correct regional imbalances within the Euro-area, given the constraints on fiscal policy and limitations the ECB has for future contributions from monetary policy.

However, given the inflexibility of currency values within the EUR, it remains highly likely that a weakening of the external value of the EUR is likely to be part of the policy adjustment process.