Singapore dollar continues tight channel trade against US dollar

Traders meanwhile focus on the strength of the euro.

IG Markets Singapore reported:

It was a more settled night on the FX markets as consolidation was seen in most crosses.

The SGD continues to trade in a tight channel against the greenback, keeping to a range of 1.2240-1.2280.

After-market comments by Bernanke failed to inspire traders to take on big positions or create much price action. The Fed’s chief urged Congress to reach an agreement to raise the debt ceiling as he took a cautiously optimistic stance. He also indicated that QE cash injections are unlikely to end this year.

Traders continue to focus on the strength of the euro as it tests new highs, hoping that the fragile peripheral European economies are stabilising. Multiple recommendations to go long of the single currency by several investment banks over recent days have added some weight to the price action, with the suggestion that there is more euro strength to come.

Notable overnight moves were in GBP and CHF. Sterling fell as weak manufacturing output led to speculation that the UK is heading towards a technical recession. Meanwhile there was weakness in the Swiss currency - with the focus on EURCHF which has moved up above 1.23 - meaning we have truly broken out of the tight range around the 1.20 floor which had acted as a floor for the cross for most of 2012.

DBS Group Research meanwhile noted:

USD bears took comfort from Fed Chairman Ben Bernanke that US rates are set to stay exceptionally low throughout 2013. Bernanke expects inflation to stay below 2% and views unemployment as still “quite high”. Overall, the Fed chief reckons that the US economy was moving in the right direction, but not as fast as the Fed would like.

The Fed’s job is now to nurture the recovery, which he still considers as fragile. Bernanke provided some insight that the Fed was helping to support, via the housing market, US consumer confidence from uncertainties over the fiscal cliff.

In short, monetary policy could act as stimulus to balance the fiscal drag. As far as returning US fiscal finances to a path long-term sustainability is concerned, Bernanke considers it more important for US lawmakers to raise the federal debt ceiling than for the Fed to raise interest rates. The fact that he was cautiously optimistic about the US economy over the next couple of years suggested that US rates will not go up before his term expires in January 2014.

It was important to note that Bernanke’s optimism was also attributed to “pretty good” fundamentals in emerging markets and some progress in resolving the Eurozone crisis. In Eurozone, leaders are touting that the worst was over for the crisis. Standard & Poor’s reckoned over the past week that 2013 could “mark the start of the region sustainably overcoming the market volatility and fragmentation”.

In China, stock markets surged after its securities regulator said that China could boost schemes to allow more foreign participation in yuan-denominated A shares and bonds.